Dow sinks below 8,000
Compiled from Times wires
NEW YORK -- As investors reacted to more disappointing news on earnings, new signs that the economic recovery could be weaker than expected and worries about a war with Iraq, stocks tumbled Thursday to their lowest level since the overall market hit a five-year low in July.
The Dow Jones industrial average fell 2.8 percent and is just 240 points -- or a decline just a bit larger than Thursday's -- from its four-year low of 7,702.34, reached July 23. The Standard & Poor's 500-stock index dropped 3 percent and is just 46 points from its five-year low of 797.70, also reached July 23. The Nasdaq composite index fell 2.9 percent and is just a bit more than 10 points from its five-year low of 1,206.01, reached Aug. 5.
All 30 Dow stocks fell after President Bush sent Congress a resolution that would allow him to use military force to disarm Iraq.
"The sword of Damocles hanging over the market is Iraq," said Al Goldman, the market strategist at A.G. Edwards. "The market can handle anything once it knows what it is. The market can't look beyond Iraq."
Investors were unsure whether a military conflict with Iraq could slow the U.S. economy, while pumping up the price of oil.
Stocks are threatening to break through their recent lows just ahead of Tuesday's meeting of Federal Reserve policymakers. If stocks continue to decline, many investors will be hoping for a rate cut from the Fed, although policymakers have indicated most recently that one should not be expected. Such a disappointment, even if expected, could send stocks to new lows.
The worst news for investors has probably been the parade of earnings announcements, with some companies beginning to report their third-quarter results and others "confessing" that their performance will not be as good as expected.
"There was a consensus building as recently as four or five weeks ago that third-quarter earnings might show some very encouraging signs," said Stanley Nabi, managing director of CS First Boston Asset Management. "Day by day, that expectation is becoming deflated."
Bad news has already come this week from J.P. Morgan Chase, McDonald's and Oracle. A disappointment from one company in a sector has not been good for its rivals, either, because their stocks have fallen as well.
Morgan Stanley, Electronic Data Systems and Knight Ridder joined the parade Thursday. Morgan Stanley reported its eighth consecutive quarterly decline in profits. Its third-quarter earnings fell 13 percent from figures in the quarter a year earlier. That report pulled Morgan Stanley's stock down $4.20, or 11 percent, to $33.90, and other brokerage stocks followed. Prudential Financial fell 3.7 percent and Merrill Lynch, which announced the dismissal of two top executives on Wednesday for not cooperating with the federal investigation into Enron, was off 4.5 percent.
EDS, which sells computer services, said that its profit in the third quarter would be 12 cents to 15 cents a share, down 80 percent from the company's previous forecast. Its shares plunged $19.26, or 52.8 percent, to $17.20. IBM, its chief rival, fell 6.8 percent.
Knight Ridder, the newspaper publisher, reduced its profit forecast to 81 cents a share from a July forecast of 82 cents to 89 cents a share because of the advertising slump. Its stock dropped $4.53, or 7.3 percent, to $57.91 a share. Other newspaper stocks fell along with it.
But the carnage wasn't limited to industries that are already ailing. Investors drove down the stocks of homebuilders, which have been one of the few bright spots throughout the economic slump of the past two years. It came on news that housing starts in the U.S. fell in August for the third month in a row, which made some investors worry that the long-rising housing market could be losing steam.
"Homebuilding stocks are starting to act tired, even though the housing market still looks pretty positive," A.G. Edwards' Goldman said. "Whether or not they've risen too much and are overvalued, we won't know until we have hindsight."
Others argue that the market overreacted to the housing starts data. They point out that other data released Thursday could point to a continued bright outlook for builders; more housing permits were issued in August, and mortgage rates fell to a new low last week.
-- Information from the New York Times, Knight Ridder, Washington Post and Cox News Service was used in this report.
© 2006 • All Rights Reserved • Tampa Bay Times
490 First Avenue South St. Petersburg, FL 33701 727-893-8111
From the Times
From the AP