Market Rethinks Powell Briefing - TheStreet

Market Rethinks Powell Briefing

Stocks turn negative as the prospect of war is digested.
Publish date:

Updated from 1:12 p.m. EST

Stocks turned negative in the final hour as investors continued to digest the ramifications of Colin Powell's presentation before the U.N. Security Council.


Dow Jones Industrial Average

was last down 40 points, or 0.5%, to 7973, while the


was down 7 points, or 0.5%, to 1300. The

S&P 500

fell 6 points, or 0.7%, to 843. The Dow had been up as much as 139 points earlier and the Nasdaq had climbed almost 2%.

"I didn't understand why we were up to begin with," said Sean Martin, head trader at A Gary Schilling & & Co. "We're going to war."

Martin said concerns about North Korea and warnings about possible terrorist attacks have also weighed on stocks. U.S. counterterrorism officials have warned that terrorist attacks on U.S. soil are more likely as a result of possible military action in Iraq, according to



In his U.N. Security Council briefing Wednesday morning, Powell played a Jan. 30 audio recording of conversations that he said were between Iraqi officers discussing "forbidden ammo." He also displayed satellite photographs that he said illustrate how Iraq has been lying about its weapons program. He said Iraq has made "no effort" to disarm, adding that the country has at least 7 bio-weapons laboratories.

"They are inspecting ammunition you have ... for the possibility there are forbidden ammo," said one voice that Powell identified as Iraqi official. "We sent you a message yesterday to clean out the areas, scrap areas, abandoned areas, make sure there is nothing there."

Iraq's ambassador dismissed the evidence as "assumptions and presumptions" which offered "no new evidence" while various members of the U.N. said inspectors need more time. China said Wednesday that the Security Council must let inspectors go on with their work and Russia and France echoed these sentiments. Investors must now wait for a Feb. 14 presentation by chief U.N. inspectors Hans Blix and Mohammed ElBaradei.

Traders and analysts were initially optimistic following Powell's speech, which raised hopes for multilateral action against Iraq.

"Hopefully, when we come out of this, the Security Council will be unified in their condemnation," said Tony Cecin, head of equity trading at US Bancorp Piper Jaffray.

That will either move Iraq to fully disarm or prompt the U.N. to do the job itself, Cecin added. Still, he, and other analysts warned that until the situation in Iraq is fully resolved, a sustained move higher is unlikely.

A weak information-technology spending outlook from


(CSCO) - Get Report

added to the cautious tone. The networking company beat revenue and earnings estimates for its just-completed second quarter, but warned that third-quarter revenue would be flat or down 3% sequentially, and said no real recovery would materialize before the global economy turned around. Cisco fell 0.2% to $13.22.

In other corporate news, Sprint posted a slight profit for the fourth quarter compared to with sharp loss in the year-earlier period. Still,

The Wall Street Journal

reported that the firm's two top executives were forced out last week amid questions over their use of a type of tax shelter that is under scrutiny by the Internal Revenue Service. Investors had believed that Chief Executive William Esrey was leaving because he had been diagnosed with lymphatic cancer, but in fact, his departure was unrelated to his medical condition. Shares rose 1% to $12.51.

In economic news, the Institute for Supply Management's nonmanufacturing index came in at 54.5 in January compared with a revised 54.2 in December. Economists were expecting a reading of 54. Meanwhile, the employment index broke above 50 for the first time in 22 months, rising to 50.3 from 46.9 in December.

The 10-year Treasury note was down 2/32 to yield 3.93%.

Volume on the Big Board reached 1.08 billion shares, with decliners beating advancers by 17 to 14. On the Nasdaq, 1.09 billion shares changed hands with losers outpacing winners by 17 to 13.

Overseas markets ended higher on the heels of Powell's speech, with London's FTSE 100 up 2.4% to 3678, while Germany's Xetra DAX was adding 3.7% to 2730. In Asia, Japan's Nikkei was up 0.8% to 8550, while Hong Kong's Hang Seng was down 0.8% to 9180.