The stock market took a beating Monday, and one analyst had a simple explanation for the broad decline.
“There’s no reason to buy equities,” said Dan McMahon, head of listed trading at CIBC World Markets.
Ominous reports about the threat of war with Iraq and grim corporate news dragged the Dow Jones industrial average down more than 170 points.
Traders said the biggest factor was the Iraq situation. France said it was prepared to vote against the UN resolution on Iraq, and for investors the announcement raised the prospect of the U.S. going to war without support from its allies.
“It is just a very gloomy picture,” said Peter Cardillo, president and chief strategist of Global Partner Securities Inc. “Certainly, the attitude, the psychology, the mood on Wall Street is one of gloom and doom, and that is continuing.”
With all 30 of its stocks falling, the Dow closed down 171.85, or 2.2 percent, to 7568.18. The Standard & Poor’s 500 index dropped 21.41, or 2.6 percent, to 807.48. The Nasdaq composite index fell 26.92, or 2.1 percent, to 1278.37. The Russell 2000 index of small-company stocks slid 6.17, or 1.7 percent, to 348.01.
Monday marked the three-year anniversary of the Nasdaq’s all-time closing high of 5048.62. Since then, the Nasdaq, down 75 percent from that peak, and the rest of the market have suffered brutal declines.
“Usually, when you get to these depths of pessimism, something happens, a catalyst comes along and reverses market psychology,” said Cardillo. “But what that catalyst may be is anyone’s guess.”
Trading volume was light, another sign that investors were refusing to make major commitments.
Volume on the New York Stock Exchange was about 1.21 billion shares, compared with a low February average of 1.34 billion shares. Nasdaq volume totaled 1.10 billion shares.
“There’s nothing that has happened that would materially change the investor psyche, especially with us facing a war in the near term,” said Weston Boone, vice president of listed trading at Legg Mason Wood Walker. “There’s nothing positive out there in the foreseeable future.”
The market also was disappointed to hear an elite group of economists cut growth estimates. Respondents to the Blue Chip Economic Indicators’ March poll cut their forecast for first-quarter gross domestic product growth to an annualized rate of 2.2 percent from an earlier prediction of 2.6 percent. The group cut its 2003 growth outlook to 2.6 percent from 2.7 percent.
Blue-chip losses were subsequently widespread. International Business Machines fell $2.20, to $75.70. Caterpillar declined $1.01, to $44.79. Wal-Mart stumbled 99 cents, to $47.13.
Corporate news added another bleak layer to Monday’s session.
Pharmaceutical giant Bristol-Myers Squibb declined 29 cents, to $22.51, after restating earnings for 1999 to 2001 and revising profits downward by $900 million because of accounting practices under investigation by prosecutors and regulators.
Because of the scale of the short-term debt obligations of Fannie Mae and Freddie Mac, a problem at either of the government-sponsored companies would spread quickly, said William Poole, president of the St. Louis Federal Reserve Bank. The companies supply the financing for U.S. mortgage markets.
Fannie Mae shares were the second most actively traded issue on the NYSE, falling 6.9 percent, or $4.35, to $58.93. Freddie Mac shares lost 5.9 percent, or $3.20, to $50.80.
General Electric shares slumped after it reported a $5.25 billion pension plan investment loss in a footnote to investors, renewing questions about the quality of overall corporate disclosure. GE stock fell 70 cents, to $23.60.
Flight attendants at AMR Corp.’s American Airlines said bankruptcy could come sooner rather than later. Shares of AMR lost 40 cents, or 14 percent, to $2.41.
