Stocks finished mixed on Monday in low-volume trading. Equities had staged a minor recovery early in the session, following a steep, data-driven slide on Friday. All eyes are on Tuesday's Federal Open Market Committee meeting, which analysts expect to result in an interest rate lift of 25 basis points.
The Dow Jones industrial average ended nearly unchanged, down 0.67 point, at 9,814.66. The broader Standard & Poor's 500 index gained 1.25 points, or 0.12%, to 1,065.22. The tech-heavy Nasdaq lost 2.25 points, at 1,774.64. Retail sectors made some gains.
Trading early in the week will be dominated by Tuesday's Federal Open Market Committee meeting. The Federal Reserve is still widely expected to proceed with a quarter-point rate hike, but traders will mull the Fed's comments on the economy.
The words the FOMC chooses will be more important than the action it takes, says Jon Blumenfeld, an interest-rate strategist at BNP Paribas. "They will have to walk a fine line between failing to acknowledge the realities of the recent GDP and employment data, and allowing themselves to be sidetracked by what may be a transitory blip in the ongoing recovery."
Michael Wallace, global market strategist for Action Economics, adds that with the economy in flux, "a nurturing but still-vigilant Fed" is needed. The economic research outfit expects the central bank to reach a base interest rate of 2.25% by the end of 2004, unless further evidence shows that the recovery has been arrested, according to Wallace.
Since the Fed's Tuesday action isn't considered a mystery, some analysts have their eyes set on other market-moving factors. "More important... is the price of a barrel of oil," says Art Hogan, market strategist at Jefferies & Co in Boston. "Higher energy prices are a stealth tax and a drag on corporate profits," as the cost of producing and shipping goods rises, and customers find themselves with less disposable income to pay for goods and services because they're charged more money to fill up their gas tanks.
On Monday, oil prices reached new, 21-year highs -- reaching $44.78 on Nymex, with September Brent crude oil futures up to $41.50 in London. Oil prices lifted on conflicting reports about available supply from Russia's Yukos, and news that Iraq has halted output at its Basra oil terminal due to fighting, according to S&P's MarketScope. Oil stocks rose on the news, while airlines suffered from the added costs.
In economic news, June wholesale inventories rose 1.1.% -- analysts expected a 0.5% gain -- following a revised 1.4% gain in May. Sales were flat. "The new data should support some upward drift to the disappointing first reading of second-quarter growth," says economic research group Informa Global Markets. Durable goods inventories climbed 1.4%, with sales up just 0.5%. Along with a gain in autos, inventories of computer equipment rose 5.0%, and machinery added 2.4%.
In corporate news Monday, Citigroup (C) will acquire the derivatives markets business of Knight Trading (NITE) for $225 million cash. Knight has increased its $110 million stock repurchase program to $250 million. Knight shares rose 5.7%.
Department store operator Dillard's (DDS) made a deal to sell substantially all of the assets of Dillard National Bank to GE Consumer Finance for about $1.25 billion, which includes the assumption of $400 million of securitization liabilities, and the purchase of owned accounts receivable. S&P has kept its avoid rating of the stock. Dillard's shares ended 5.5% higher.
Steel stocks were also on the rise Monday. Wheeling-Pittsburgh (WPSC) rose 12% after posting strong June-quarter earnings and projecting even better pricing as steel demand grows. The company reported a second-quarter EPS of $2.79 vs. a loss of 70 cents.
Cablevision Systems (CVC) reported a loss of 63 cents per share (diluted) in its second quarter, vs. net income of 54 cents in the same period last year. Consolidated operating income was $159.1 million vs. $26.2 million on a 25% total revenue rise. Shares finished 2.7% lower.
Circuit maker Maxim Integrated (MXIM) gained 1% after posting fourth-quarter earnings of 36 cents per share, vs. 24 cents, on a 43% net revenue rise. Both Schwab SoundView and Morgan Stanley have raised their estimates of Maxim shares, while S&P reiterated its accumulate rating.
In auction house news, Sotheby's Holdings (BID) added 13% after posting second quarter earnings of 65 cents vs. 21 cents from continuing operations on a 55% revenue rise.
Economic updates scheduled for release this week include mortgage applications, jobless claims, June business inventories, the July producer price index and a preliminary read on the University of Michigan consumer sentiment index for August.
Among the major names on Tuesday's earnings calendar: Cisco Systems (CSCO), Walt Disney (DIS) and Computer Sciences (CSC).
U.S. Treasuries prices finished mostly lower Monday. Traders were anticipating the wording of the Federal Reserve's statement to be issued after the close of Tuesday's policy meeting for clues about future Fed moves.
In currencies, the euro was worth $1.227, the British pound was at $1.840, while the U.S. dollar at 110.63 yen.
European stock markets finished lower on Monday, as traders eyed a potentially less-robust U.S. economic outlook. London's Financial Times-Stock Exchange 100 index fell 23.5 points, or 0.54%, to 4,314.40. The U.K. producer price index rose 0.6% in July, while output prices rose 0.1%, less than expected. House prices rose by 13.9% year-on-year in June, up from 12.2% in May. British Airways was lower on plans to more than double the fuel surcharge on its long-haul flights because of rising oil prices, reports S&P's MarketScope.
In Paris, the CAC 40 lost 31.34 points, or 0.89%, to 3,497.30 on economic growth jitters. High-end retailer Hermes was higher after reporting strong second-quarter sales. Germany's DAX index declined 37.41 points, or 1%, to end at 3,690.33.
Asian stock markets lost more ground overnight. Japan's Nikkei 225 index fell 63.87 points, or 0.58%, to 10,908.70, as Friday's data-induced slump on Wall Street weighed on early trade.
In Hong Kong, the Hang Seng index fell 11.27 points, or 0.09%, 12,467.41. "China plays on the bourse were hit, amidst worries that Beijing might launch more measures to cool China's economy," according to MarketScope.