Wall St. still jittery

February 5, 2002 Posted: 2358 GMT

NEW YORK (CNN/Money) -- The Enron fallout continues. After a tumultuous Tuesday, accounting issues will be front and center Wednesday, as jittery investors try to make sense of the latest turns in the Tyco saga.

After-hours Tuesday, the bad news continued for Tyco International (TYC: down $6.80 to $23.10, Research, Estimates) as credit agencies cut the ratings on its financial arm, Tyco Capital, which said it would also draw on credit facilities to pay off debt (see full story). The stock has lost 35 percent in the past two trading days.

Also after the bell, shares of General Mills (GIS: up $0.04 to $48.71, Research, Estimates) fell as the company cut earnings forecasts for the third quarter and full fiscal year.

On Tuesday, the Dow Jones industrial average lost a slim 1.66 to close at 9,685.43. The Nasdaq composite index lost 17.01 to end at 1,838.52; it was the third session in a row that the index closed lower. The Standard & Poor's 500 index lost 4.42 to 1,090.02.

Stocks were mixed in early trade on a pair of forward-looking statements issued before the open of trade.

Optical networking company Ciena (CIEN: down $1.12 to $9.00, Research, Estimates) said it will report a wider-than-expected first-quarter loss of 19 cents-to-22 cents per share, when analysts expect a loss of 11 cents per share.

Dow component General Electric (GE: up $1.21 to $36.21, Research, Estimates) reaffirmed its previous first-quarter and full-year earnings target, saying it would see 2002 earnings of $1.65 to $1.67 a share, when analysts surveyed by First Call expect earnings of $1.66 a share.

For much of the day, the tech investor's loss was the blue-chip buyer's gain as some money was rotated out of depleted telecoms and networking issues and put into so-called "safe haven" names in the biotech, drug and defense sectors.

The Dow and, to a lesser extent, the Nasdaq saw a breakout from the day's gloom toward the end of the day. But the rise was short-lived following statements from Sen. Tom Daschle, D.-S.D., that the economic stimulus bill is basically at a standstill in the Senate and will most likely be shelved Wednesday.

"Markets are nervous right now. A few months ago, anthrax was our big 'A' word, and now it's accounting," Hedi Reynolds, head of Nasdaq trading at Morgan Keegan told CNNfn's Street Sweep.

Overseas, Asian stocks closed mostly lower Tuesday, while European bourses closed in the red.

Treasury prices closed little changed, with the 10-year note yield at 4.90 percent. The dollar surged versus the yen and was a little weaker versus the euro. Light crude oil futures fell 2 cents to $20.07 a barrel in New York.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by almost 3-to-2 as 1.75 billion shares changed hands. On the Nasdaq, decliners topped advancers 3-to-2 as 2.08 billion shares traded.

Telecoms hurt Nasdaq; defensives limit Dow's declines

The Nasdaq composite was pressured on weakness in networking and telecommunications issues, but found some strength in chip stocks.

"The ones that are taking the market down have been the big darlings of Wall Street in recent years, like telecom," Bob McCoey, president of Griswold Co., told CNNfn's Market Call, adding that the worry is that the market will then look at other names and start to sell them, too.

Telecommunications led the Nasdaq's big losing sectors, with Juniper Networks (JNPR: down $0.43 to $13.51, Research, Estimates) and JDS Uniphase (JDSU: down $0.45 to $6.18, Research, Estimates) down on the Ciena news, while WorldCom (WCOM: down $1.16 to $6.97, Research, Estimates) and Nextel (NXTL: down $1.73 to $5.05, Research, Estimates) continued to fall on liquidity and debt repayment worries.

Late Monday, phone service provider Sprint (FON: down $2.18 to $13.83, Research, Estimates) reported a big drop in fourth-quarter profit from a year earlier that nonetheless topped analysts' estimates.

"There's a panicky feeling that the telecom weakness could spread across tech in general," said Tim Heekin, head of stock trading at Thomas Weisel Partners.

The day's two economic reports offered mixed results. The Institute of Supply Management's report on services for January fell to 49.6 percent from 50.1 percent in December. Economists surveyed by Briefing.com were looking for an expansion to 52.0 percent.

December factory orders rose 1.2 percent in December, the government said, in line with expectations. Orders had declined 3.3 percent in November.

The aftermath of Enron

In the latest developments for bankrupt energy trader Enron, currently under investigation, former CEO Kenneth Lay has agreed to appear before Congress on February 14 in response to a subpoena issued by the Senate, calling him to testify. Mr. Lay failed to show up for scheduled testimony Monday.

The company's problems have clouded investors' views about accounting procedures for several other companies, eroding confidence in the stock market.

"Everything out of [Federal Reserve Chairman Alan] Greenspan and the White House has been good," Heekin said, referring to the economy and the budget. "We're at a key inflection point. The fundamental issue is: Are we going to have another Tyco or Enron? And when?"

Three companies with potentially sketchy accounting practices hanging over them continued to fall.

Irish pharmaceutical company Elan (ELN: down $0.86 to $13.99, Research, Estimates) suffered following news Monday that the company's fourth-quarter profit fell 84 percent from the year before and that 2002 profit could come in up to 34 percent lower than currently expected. Two law firms also filed suit against the company on behalf of investors.

Conglomerate Tyco continued to slide following allegations Monday in a published report that the company had spent $8 billion on more than 700 acquisitions over the past three years without disclosing this to the public. The company refuted the allegations.

In addtion, Enterasys (ETS: down $0.20 to $4.00, Research, Estimates) -- which had fallen after it had delayed releasing results due to potential accounting issues -- continued to decline after briefly ticking upwards in the morning.

"I think that markets are doing well considering everything we're going through," Al Goldman, chief market strategist at A.G. Edwards, told CNNfn. "We're going to be in a tight trading range with a few pops upward here and there for the next few weeks, but we're going to come out of this (period) better off."

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