IBM Downgrade, UAL Bankruptcy Push Markets Lower

T he markets were just not happy today, due to a raft of bad news coming from several different sectors. Apple was dragged lower along with the rest of technology, despite positive comments issued on Friday. Chief among the negative news was a downgrade for IBM, and the somewhat anticipated bankruptcy of United Airlines (UAL).

IBM & Friends

IBM was downgraded by Joel Wagonfeld at Banc of America, who lowered his rating on the stock to "Market Perform," down from a "Buy." Mr. Wagonfeld said that IBMis stock is fully valued, meaning that it is priced what it is worth in his opinion, and that there was a lack of catalysts for new growth.

Last Friday, IBM announced it was buying Rational Software for some US$2.1 billion in cash (BusinessWeek offers a good research piece on what this will mean for the company). The move is being seen largely as an effort for IBM to compete more effectively with Microsoft in the Enterprise market. IBM closed at 79.59, down 2.73 (-3.32%), on light volume.

As IBM was helping to drag down tech stocks, it was joined by Qualcomm, which also received a downgrade, from Salomon Smith Barney. The firm lowered Qualcommis rating to "In Line" from "Outperform," citing the companyis 60% stock rise since September.

UAL

Enter UAL, which formally declared bankruptcy today. The company did so after failing to secure loan guarantees from the federal government. UAL is wracked by the highest labor costs in the industry, and union-owners (55% of the company is owned collectively by its employees) that are unwilling to give wage concessions. The industry word is that bankruptcy will actually help out both United and its competitors by forcing new contract negotiations with its unions. UALis contracts have tended to guide the rest of the industry in other union negotiations. This is very much a political issue as several of UALis competitors were heavily lobbying the Bush administration to not give the loan guarantees in order to force UAL into the position of coming up with new contracts. There was much jockeying behind the scenes.

Whether or not bankruptcy does help the industry, UALis bankruptcy sent ripples throughout the markets as banks and other creditors were hit, and investor confidence in general was shaken.

War with Iraq & Snow in DC

With all of this nervousness, bad news, and the self-esteem issues brewing in the Wall Street pot, throw in a dash of continued worries that the US will go to war with Iraq no matter what the outcome of UN inspections, and a pinch of uncertainty over the White Houseis choice of Treasury Secretary (John W. Snow, CEO of train superpower CSX) and you get todayis recipe. Set it to cook for 6 hours in the trading pits, and out comes a red pie, as most stocks lost ground.

The Markets

At the close of trading, the Dow Jones Industrial Average closed at 8,473.41, a loss of 172.36 (-1.99%). The S&P 500 closed 892.00, down 20.23 (-2.22%), and the NASDAQ Composite Index dropped to 1,367.14, down 55.30 (-3.89%).

Apple

There was little in the way of Apple news, other than the late percolation of Appleis announcement of having had its millionth unique customer at its online Apple Store. Check out our coverage from Friday for more information. Apple closed at 14.75, down 0.20 (-1.34%), on moderate volume of 4,169,404 shares trading hands.