The five-session rally for stocks ended Monday, as oil prices rebounded on geopolitical concerns. Profit-taking and some unwinding of positions after Friday's expiration of options weighed on the stock market, says Standard & Poor's Equity Research.
The Dow Jones industrial average fell 36.42 points, or 0.32%, to 11,333.44. The broader Standard & Poor's 500 dropped 4.78 points, or 0.37%, to 1,297.52. The tech-heavy Nasdaq composite slid 16.2 points, or 0.75%, to 2,147.75.
In the energy markets, September West Texas Intermediate crude oil futures jumped $1.41 to $72.55 a barrel amid reports Iran said it won't suspend its uranium enrichment program by Aug. 31, jeopardizing an incentive package backed by six world powers. Meanwhile, President George W. Bush called for an international force to keep peace at the Israel-Lebanon border.
From a technical perspective, the market's recent rally may have paved the way for a reversal starting in September, some analysts say. "The low-volume bounce could face significant headwinds as the market approaches the worst seasonal month (performance-wise) of the year," says Morgan Stanley technical analyst Mark Newton.
Even if gains carry over into September, the eventual pullback could be severe, others say. "While this 'summer rally' may set new bull-market benchmarks for the senior averages, the potential for a decline in excess of 20% remains high," says Mary Ann Bartels, chief U.S. market analyst at Merrill Lynch.
The economic calendar is light on Tuesday. However, a few Federal Reserve members will give speeches. Atlanta Fed's Guynn on Tuesday will cover "Transitions in the U.S. Economy and Financial System" from at the Atlanta Kiwanis Club. Moskow of the Chicago Fed will follow shortly thereafter on the economy from Bloomington, Indiana. "Either could provide a little policy fodder and put a floor under yields ahead of Chairman Bernanke's keynote speech on "Global Economic Integration" from Jackson Hole, Wyoming, on Friday morning," says Action Economics.
Investors were digesting a mix of corporate news Monday. Lowe's (LOW) was lower after the home-improvement retailer reported an 11% rise in second-quarter profit, missing analyst estimates, and reduced its full-year guidance.
Elsewhere in retailing, Dollar General (DG) lost ground after the company said it expects second-quarter EPS of 14-15 cents, which is below prior guidance of 18-22 cents. It cited lower-than-expected gross margin.
And AnnTaylor Stores (ANN) fell after Prudential downgraded the stock to underweight from neutral.
Stock-options troubles also remained in focus. Medarex(MEDX) was lower after the biopharmaceutical company said it will restate annual and quarterly financial statements as far back as 2000 due to an investigation into improperly dated employee stock options.
Meanwhile, Broadcom (BRCM) was lower on a report the chipmaker will start an appeal process to retain its listing on Nasdaq after delaying filing its quarterly report because of a stock-options probe.
Computer maker Apple (AAPL) was also lower amid continuing legal concerns related to stock-options practices and SanDisk's (SNDK) launch of a new digital music player to rival Apple's iPod.
Shares of Google (GOOG) fell on news the Internet search company's market share fell 1% in July as the company faces another click-fraud lawsuit.
On the upside, Procter & Gamble (PG) was modestly higher on a report the consumer-products giant could be poised to continue its recent earnings growth.
In deal news, Citadel Broadcasting (CDL) was reportedly hoping to renegotiate parts of of its $2.7 billion agreement to buy Disney's (DIS) ABC radio business.
Chicken processor Pilgrim's Pride (PPC) late Friday offered about $1 billion, or $20 a share in cash, to buy peer Gold Kist (GKIS).
In analyst calls, Ford (F) was lower after Credit Suisse downgraded the automaker from neutral to underperform.
The economic calendar was light Monday. Later in the week, investors will be weighing releases on July new and existing home sales, as well as durable goods orders.
European markets were mixed. In London, the Financial Times-Stock Exchange 100 index gained 11.8 points, or 0.2%, to 5,915.2. Germany's DAX index slipped 22.19 points, or 0.38%, to 5,794.83. In Paris, the CAC 40 index was down 31.04 points, or 0.6%, to 5,104.65.
Asian markets finished lower. Japan's Nikkei 225 index lost 136.94 points, or 0.85%, to 15,969.04. In Hong Kong, the Hang Seng index slid 322.86 points, or 1.86%, to 17,007.88. Korea's Kospi index declined 9.43 points, or 0.71%, to 1,321.67.
The 10-year note edged up in price for a yield of 4.819%. According to Action Economics, U.S. yields idled near post-inflation data lows as the bond market set up for a round of housing data midweek and a brief defensive sell-off proved short-lived. Some rotation out of equities kept a lid on yields as well, in addition to friendly technicals amid moderate volumes and a lack of hard data, says Action Economics.