Stocks finished modestly lower Monday, though off their worst levels, as oil prices surged after a pipeline leak prompted the shutdown of an Alaskan oil field. The news came amid caution ahead of the Federal Reserve meeting on Tuesday, when central bankers are widely expected to pause after 17 consecutive interest-rate hikes, says Standard & Poor's Equity Research.
The Dow Jones industrial average lost 20.97 points, or 0.19%, to 11,219.38, led downward by Disney (DIS). The broader Standard & Poor's 500 index slipped 3.59 points, or 0.28%, to 1,275.77. The tech-heavy Nasdaq composite shed 12.55 points, or 0.6%, to 2,072.5.
NYSE breadth was negative, with 20 issues declining for every 13 advancing. Nasdaq breadth was 20-11 negative amid moderate volume.
The economic calendar was relatively quiet Monday, with all eyes on the upcoming session's Fed meeting. Tuesday's docket also includes data on second-quarter productivity, with releases on July retail sales and June international trade due later in the week.
The Fed faces a tough decision as it considers whether to raise interest rates, some analysts say. "Market participants seem to be focusing more on slower growth data than on the signs of higher inflation, pricing in less than a 20% probability of a Fed hike at tomorrow's meeting," says William Dudley, chief U.S. economist at Goldman Sachs. "We think the Fed's rate decision is a much closer call."
If the Fed pauses, don't count on a rally, others say. "The stock market has been champing at the bit for its opportunity to break and run free of the interest rate tether for some time now, but we would not be chasing stocks after the bounce up from the June/July lows," says Thomas McManus, chief investment strategist at Bank of America. "Another 'Fed's done!' rally would be a good time to raise cash for those who have not yet shifted their portfolios to a more defensive mode."
On the company side, Exxon Mobil (XOM) and Chevron (CVX) were modestly higher on the closure of BP's (BP) Prudhoe Bay oil field in Alaska.
Stock-options accounting troubles remained in the news. Apple (AAPL) lower following a report that the computer maker made options grants to top executives more than once before jumps in its stock price between 1997 and 2001. The company also unveiled a new Mac Pro computer and said it would update its operating system by spring 2007.
Meanwhile, shares of Affiliated Computer Services (ACS) dipped after the information-technology outsourcer announced that an internal investigation surrounding stock options should be complete in September.
Internet search giant Google (GOOG) was higher after announcing a deal to distribute video clips from Viacom's (VIA) MTV.
In analyst calls, Occidental Petroleum (OXY) was higher despite J.P. Morgan cutting its recommendation on the stock from overweight to neutral.
M&A action also helped kick off the week. Kindred Healthcare (KND) and AmerisourceBergen (ABC) were higher after the companies agreed to combine their institutional pharmacy units to create a new, publicy-traded company.
Companies set to report earnings Tuesday include Cisco (CSCO), Clear Channel (CCU), and News Corp. (NWS).
In the energy markets Monday, September West Texas Intermediate crude oil futures closed up $2.22 at $76.98 a barrel on the Prudhoe Bay closure, close to an all-time closing high.
European markets finished lower. In London, the Financial Times-Stock Exchange 100 index fell 60.6 points, or 1.03%, to 5,828.8. Germany's DAX index lost 96.36 points, or 1.68%, to 5,626.67. In Paris, the CAC 40 index was down 84.61 points, or 1.68%, to 4,956.34.
Asian markets finished mixed. Japan's Nikkei 225 index tumbled 345.12 points, or 2.23%, to 15,154.06. In Hong Kong, the Hang Seng index advanced 65.75 points, or 0.39%, to 16,953.55. Korea's Kospi index declined 14.97 points, or 1.15%, to 1,289.54.
Treasury yields ticked higher after a $21 billion three-year note auction. The 10-year note fell modestly in price to 101-18/32 for a yield of 4.92%, while the 30-year bond eased to 92-10/32 for a yield of 5%.