Despite last week's rally, U.S. markets began the fourth calendar quarter down Monday as profit warnings, impending military action and a slouching economy continued to plague the minds of wary investors.
Even better-than-expected manufacturing sector figures released Monday, and anticipation that the Federal Reserve will snip interest rates again Tuesday, failed to buoy U.S. markets after last Friday's upswing.
The National Association of Purchasing Management (NAPM) reported that its monthly index dropped only slightly in September, down to 47 from 47.9 in August, indicating that the manufacturing sector was on the road to recovery, at least before the Sept. 11 terrorist attacks that sent the U.S. economy into a tailspin. A NAPM index reading of below 50 indicates that manufacturing activities are slowing. The index has been below 50 since August 2000, but had been making a steady ascension.
Although the manufacturing figures were lower, they weren't as hard hit as analysts predicted. Still, markets took a downturn, even though the Fed is expected to cut interest rates by another half point at its scheduled meeting tomorrow, marking the ninth time it's slashed rates so far this year. Adding to investor doldrums, the U.S. Department of Congress reported Monday that growth in consumer spending was flat in August, even before the attacks, and despite tax rebates.
Consumer spending rose a mere 0.2 percent in August, the same as it did in July. Analysts had expected a 0.3 consumption rate for August.
With uncertainty ahead and sour economic news continuing to roll in, the markets opened low, but then managed to regain some strength in midafternoon trading. The Dow Jones Industrial Average traded down 54.87 points, or 0.62 percent to 8,792.69 at midday Monday, while the Nasdaq slipped 21.62 points, or 1.44 percent to 1,477.18.
Tech stocks were mixed, with losses concentrated in hardware shares, as investors braced themselves for lower corporate profits.
Hewlett-Packard Co. (HWP) dropped 2.93 percent to US$15.58, while Compaq Computer Corp. (CPQ) slipped 0.24 percent to $8.29. Meanwhile, IBM Corp. (IBM) managed to make modest gains, trading up 1.08 percent to $92.71.
Chip makers tumbled as Merrill Lynch & Co. Inc. analyst Joe Osha slashed his earnings-per-share projections for Intel Corp. and Advanced Micro Devices Inc. Intel (INTC) dropped 2.35 percent to $19.96, as Osha predicted that the company's 2001 fourth-quarter earnings would sink from 14 cents to 9 cents per share. Advanced Micro Devices (AMD) slipped 0.31 percent to $7.84 after the analyst cut his full-year 2001 earnings-per-share estimates on the company from 36 cents to 27 cents.
AOL Time Warner Inc. (AOL) dropped 1.87 percent, meanwhile, to $32.48, as Amazon.com Inc (AMZN) fell 3.02 percent to $5.79.
Not all tech stocks were affected by market blues, however. Software powerhouse Microsoft Corp. (MSFT) rose 1.90 percent, to trade at $52.14, while Yahoo Inc. (YHOO) jumped 3.63 percent to $9.13, despite the fact that Prudential Securities Inc. cut its 12-month target price on Yahoo stock Monday from $20 a share to $10 due to weakness in the advertising market.
Biometrics firms, which have been given a boost lately amid an expected security boom, continued to climb. Facial and retina-scanning technologies maker Visionics Corp. (VSNX) rose 3.96 percent to $12.35, while digital identification systems maker Viisage Technology Inc. (VISG) traded up 1.39 percent to $7.14Meanwhile, European markets closed down Monday on expectations that last week's rally in the U.S. could not be sustained amid mounting recession fears. The London FTSE 100 index lost 117.8 points, or 2.4 percent to 4785.6, while the Frankfurt DAX 30 index slipped 112.9 points, or 2.62 percent to 4,195.25. The Paris CAC 40 index closed down 74.45 points, or 1.83 percent to 4,004.57, while the Amsterdam AEX 25 index dropped 16.43 points, or 3.62 percent to 437.44.
Although markets in the U.S. and Europe closed higher Friday, analysts pegged the rallies on portfolio managers, who were seeking to load up on blue chips before the third quarter ended.