US stocks tumble
New questions about accounting practices at Tyco and Enron provoked a broad selloff on Wall Street today as investors grew more doubtful about the honesty of corporate bookkeeping in general.
The Dow Jones industrials tumbled more than 200 points in a sharp decline that accelerated late in the session. Analysts said investors were concerned that other companies might have used the same type of accounting methods as Enron and Tyco. Amid weak corporate earnings forecasts, the news made stock purchases even less appealing.
The Dow closed down 220.17, or 2.2%, at 9,687.09, giving back much of the rebound last week that followed a similar selloff on worries about Tyco and Enron.
Broader stock indicators also fell, with technology issues hard hit. The Nasdaq composite index lost 55.72, or 2.9%, to close at 1,855.52. The Standard & Poor’s 500 index was off 27.76, or 2.5%, at 1,094.44.
The selloff extended what has so far been a disappointing year for the market because of concerns about the US economy and worries that the problems that brought down Enron are not isolated. Amid increasing questions about Enron’s accounting and leadership, investors have become sceptical about the accuracy of corporate reports and bookkeeping and fearful that more companies are in worse shape than their results suggest.
A report at the weekend suggesting Enron deliberately misrepresented its financial condition worsened Wall Street’s mood, as did former chairman Ken Lay’s decision not to testify before a congressional panel today.
In trading today, Tyco International tumbled dlrs 6.96, or 19%, to dlrs 29.90 on reports that it spent about dlrs 8 billion in the past three fiscal years on more than 700 acquisitions that were never announced to the public. Standard & Poor’s and Fitch, two credit rating agencies, also downgraded and expressed concerns about the economy.
Investors also sent Williams Cos down dlrs 2.64, or 14%, to dlrs 16.36 after the company said it is prepared to sell more assets and issue more stock to keep its credit rating. In the last week or so, questions have been raised about Williams’ obligations to its former telecom subsidiary, the Williams Communication Group, which is facing financial problems. Williams Communications lost 42 cents to dlrs 1.
The selling spread to companies that are not under particular scrutiny. General Electric, another conglomerate with a complex accounting structure, dropped dlrs 1.85 to dlrs 35.00.
Financial stocks were weak, too, reflecting concerns that their lending practices would make them vulnerable should companies start revising balance sheets. American Express lost dlrs 1.68 to dlrs 33.42.
Among tech issues, Ciena dropped dlrs 1.88 to dlrs 10.12 on worries the optical networking industry will take a while to recover. The sector is considered to be overpriced by some, making it more vulnerable to selling when investors are worried about future returns.
Declining issues led advancers more than 2 to 1 on the New York Stock Exchange. Volume totalled 1.42 billion shares, more than the 1.38 billion reported on Friday.
The Russell 2000 index lost 9.95 to 470.09.
