New York, June 21 (Bloomberg) -- U.S. stocks tumbled, pushing the Standard
& Poor's 500 Index below 1000 for the first time since the aftermath of
the Sept. 11 terrorist attacks. Benchmark indexes fell for the fifth straight
The eight biggest U.S. companies declined, reflecting a
weaker-than-expected rebound in corporate profits, concern over the prospect
of more terrorism and what President George W. Bush called an ``overhang of
distrust'' after Enron Corp.'s collapse.
Drug shares led the losses after the Wall Street Journal reported that
Merck & Co. boosted revenue with accounting methods not used by its
rivals. International Business Machines Corp. slumped after the third Wall
Street analyst this week said its earnings will fall short of forecasts.
``There was hope we would start seeing a pickup in second- quarter
earnings, and it's just not the case,'' said Liz Miller, who helps invest $750
million at Trevor Stewart Burton & Jacobsen Inc. The firm's largest
holdings are defense stocks, including Lockheed Martin Corp., which reached a
record high today.
The S&P 500 fell 17.15, or 1.7 percent, to 989.14, the lowest since
Sept. 21, when the index reached a three-and-a-half-year low. Drugmakers such
as Pfizer Inc. accounted for about a quarter of the drop.
The Dow Jones Industrial Average lost 177.98, or 1.9 percent, to 9253.79,
led by IBM. The Nasdaq Composite Index shed 23.79, or 1.6 percent, to 1440.96,
also its lowest close since Sept. 21.
For the week, the S&P 500 slipped 1.8 percent, as Best Buy Co. cut its
profit forecast and Advanced Micro Devices Inc. said sales will fall short of
This Year's Plunge
The index fell 11 percent over the past five weeks and has dropped 14
percent year-to-date. The benchmark's decline this year would be its steepest
first-half slump since 1970.
The Dow lost 2.3 percent for the week, bringing its five-week drop to 11
percent. It has declined 7.7 percent this year. The Nasdaq's 4.2 percent loss
this week extended its year-to-date drop to 26 percent.
Based on changes in the Wilshire 5000 Total Market Index, the broadest
measure of U.S. stocks, the market value of U.S. shares has fallen $1.52
trillion this year.
The decline in health stocks was triggered by the report on Merck. The
bookkeeping concerns added to slowing earnings growth in the industry as
patents expire and makers of generic drugs win more customers.
``The whole industry has been under a lot of pressure, and I don't see it
abating anytime soon,'' said Fred Kuehndorf, who helps manage $2 billion at
Ashland Management Inc. ``The long-term earnings potential of these companies
could be notched down'' even further, he said.
Merck declined $2.22 to $49.98, a four-year low. The Journal said the
second-biggest U.S. drugmaker's Merck-Medco benefits unit books as revenue
co-payments made to pharmacies when they fill prescriptions, even though
drugstores keep that money. Merck said the system, which has no effect on
reported revenue, is appropriate, the paper reported.
Merck's bigger rival, Pfizer, fell $2.05 to $34.03. Johnson & Johnson,
the largest medical-device maker, shed $2.04 to $53.
Ashland sold its stake in Merck late last year and has been adding hospital
and managed-health-care shares, such as Tenet Healthcare Corp. and WellPoint
Health Networks Inc.
IBM dropped $2.83 to $68.75. Daniel Niles, a Lehman Brothers Inc. analyst,
cut earnings estimates for the world's biggest computer maker because
technology spending is slowing. IBM shares have plunged 43 percent this year,
the second-steepest loss in the Dow after AT&T Corp.'s 46 percent loss.
The forecast by Niles followed reports by analysts at Salomon Smith Barney
and Morgan Stanley saying IBM's earnings would lag current estimates.
The S&P 500's largest companies also declined.
General Electric Co., the biggest company by market value, slid 75 cents to
$28.95. Microsoft Corp., the second-biggest, fell $1.82 to $52.28.
Citigroup Inc., the largest financial-services company, fell 69 cents to
$39.80. American International Group Inc., the biggest insurer, slumped $1.01
to $67. Wal-Mart Stores Inc., which generated the most revenue, retreated
$1.52 to $54.98.
Amdocs Ltd. plunged $5.96 to $8.60. The maker of billing software for phone
companies said third-quarter profit excluding certain costs will be almost 40
percent less than its previous forecast.
Volume picked up with the quarterly ``triple witching'' expiration of
stock-index futures, index options and options on stocks. Some 1.8 billion
shares traded on the New York Stock Exchange, the ninth-most on record.
Trading usually quickens during ``witching'' sessions as investors buy or
sell stocks and options to replace the ones that expire.
Almost four stocks fell for every three that advanced on the NYSE.
Advancing and declining stocks were about even on the Nasdaq Stock Market.
Bed, Bath & Beyond Inc. advanced $1.76 to $36.26. The biggest U.S.
household-goods retailer said first-quarter profit surged 54 percent, the
largest increase since the company went public in 1992.
Phil Orlando, who manages $6 billion as chief investment officer at Value
Line Asset Management, expects consumers to keep spending on their homes.
``The fundamentals continue to improve, but no one wants to think about
that,'' he said. Instead, investors are ``focused on terrorism.''
The Russell 2000 Index of smaller stocks rose 0.82, or 0.2 percent, to
461.07. The Wilshire 5000 declined 141.47, or 1.5 percent, to 9389.98. The
total value of U.S. stocks fell by $163 billion.