Stocks sag amid worries over war

Dow falls 307 points, its largest decline since early September

March 25, 2003|By Eileen Ambrose | Eileen Ambrose,SUN STAFF

The Dow Jones industrial average suffered its steepest decline in more than six months yesterday as investors concluded that the war in Iraq would not result in a quick U.S. victory.

During early afternoon trading, the Dow, an index of blue-chip stocks, was down 336 points. By the end of the day, the Dow was off 307.29 points, or 3.6 percent, at 8,214.68, with all 30 of its stocks having declined.

That was the Dow's steepest decline since Sept. 3, when it lost 355.45 points.

Standard & Poor's 500 index, a broader measure of market performance, fell 31.56 points, or 3.5 percent, to 864.23 as 489 of its 500 members fell. The technology-laden Nasdaq composite index dropped 52.06 points, or 3.7 percent, to 1,369.78.

Analysts blamed the sell-off largely on weekend news reports of captured U.S. soldiers in Iraq, coalition casualties and a tougher-than-expected Iraqi resistance.

"We got a reality check; we were inundated with visual scenes from the war over the weekend and are probably realizing this won't be just a cakewalk," said Andy Brooks, head of equity trading for T. Rowe Price Associates in Baltimore. "The instant analysis and the pictures of casualties and POWs and everything, it's unsettling for everybody. That spills into the marketplace."

Said Barker French, chief investment strategist with Brinker Capital Inc.'s office in Durham, N.C., "It's not to say we won't win in the end." Still, he said, recent war developments have "caused investors to say, `Wow, wait a minute. Maybe this is not going to be as swift and conclusive and as fast as we would like.'"

Other factors contributed to the selling of stocks in favor of bonds and cash, experts said.

Friday's gains were partly due to triple-witching, a quarterly event when options and futures on stock indexes expire at the same time. That usually causes stocks to swing up or down more than usual, then the market often reverses itself the following Monday, said Richard Cripps, chief market strategist with Legg Mason Wood Walker Inc. in Baltimore.

Analysts said the market was bound to retreat after last week, when the Dow turned in its best five-day performance since the week ending Oct. 8, 1982. The market was also coming off an eight-day rally that added 997.91 points to the Dow.

That rally put both the Dow and S&P index into positive territory for the year, after three straight years of negative returns.

"We had such a wonderful week. That's the best market in 20 years. It shouldn't be surprising we are giving some up," Brooks said.

"We've had days like this before, especially after a huge rally. It's taking back some of the froth," said David DeRosa, president of DeRosa Research and Trading in New Canaan, Conn.

Yesterday's sell-off erased those year-to-date gains. The Dow is down 1.52 percent for the year, and the S&P 500 is off 1.77 percent. The Nasdaq, heavy with technology stocks that are less affected by the war, is up 2.57 percent this year.

Analysts said the sell-off was broad, with no one sector feeling the brunt. They added that investors can expect more wide swings in the market while the war continues.

"The markets are watching developments in Iraq," said Mario DeRose, market strategist with Edward Jones in St. Louis. "As news comes out, we are likely to see quite a bit of volatility. That can cut both ways. That happened Friday. We are seeing the reversal today."

Most of the buyers and sellers these days are professional investors, and it will take some time for the small investor to gain enough confidence to put more money in the market, Cripps said. He estimates that the S&P 500 index would have to reach 965 points, a gain of about 100 points, before small investors feel that the bear market is truly over and it's safe to buy stocks again.

Elsewhere on the broad market yesterday, the Russell 2000 index, a benchmark of small-cap stocks, fell 8.98, or 2.4 percent, to 367.25, and the Wilshire 5000 total market index slumped 282.92, or 3.3 percent, to 8,180.45.

Based on the Wilshire's change, the total value of U.S. stocks fell by $339.5 billion.

The Sun-Bloomberg index of the top stocks in Maryland fell 3.83, or 2 percent, to 183.67. Marriott International Inc.'s Class A shares dropped $3.02 to $31.86, and Legg Mason Inc. declined $2.09 to $49.90.

Declining issues outnumbered advancers 11-to-3 on the New York Stock Exchange. Volume was moderate at 1.3 billion shares, compared with 1.88 billion traded Friday.

Airline shares fell as the price of crude oil climbed 6.5 percent in New York and Delta Air Lines Inc. said it was cutting flights by 12 percent. AMR Corp., whose American Airlines is the world's largest carrier, dropped 30 cents to $2.08. Delta, the third-largest carrier, slid $1.73 to $9.52.

Priceline.com Inc., which sells plane tickets on the Internet, slipped 10 cents to $1.71. The company said it will have as much as 4 cents a share in first-quarter costs for granting Marriott International warrants to buy 5 million common shares.

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