Major indexes pared earlier losses as investors sought bargains. Weak economic data weighed on the broader market
Major U.S. stock indexes closed mixed Monday, as late bouts of bargain hunting lifted Alcoa (AA), Caterpillar (CAT) and other selected issues. Much of the market, however, lost some ground on the day, as weak manufacturing and construction spending data limited buying interest. Higher oil prices accompanied these reports, keeping fears of inflation alive.
Shares of Boeing (BA) dropped after the aerospace giant lost a huge U.S. Air Force contract to competitors. Diebold (DBD) jumped after United Technologies (UTX) offered to but the company for $40 a share.
On Monday, the Dow Jones industrial average finished lower by 7.49 points, or 0.06%, at 12,258.90. The broader S&P 500 index gained 0.71 points, or 0.05%, to close at 1,331.34. The tech-heavy Nasdaq composite index shed 12.88 points, or 0.57%, to end the session at 2,258.60.
Activity in the broader market was negative, with 17 stocks declining in price for every 15 that advanced on the New York Stock Exchange. Nasdaq breadth was 19-11 negative.
Early weakness in stocks Monday may have been prompted by Warren Buffett's declaration that the U.S. is already in a recession by common sense measures was probably adding to investors' fears.
Investors may also be worried about rising inflation concerns hinted at in remarks by a couple of Federal Reserve Bank executives. Charles I. Plosser, president of the Philadelphia Fed, said the severity of financial events justifies that rates be slightly lower than policy rules dictate, but said the accommodation efforts must be reversed as soon as the economy stabilizes in order to rein in inflation, according to Action Economics. Charles L. Evans, president of the Chicago Fed, is also pushing for a prompt removal of accommodation measures as soon as the need is gone and questioned whether further easing of rates will lead to excesses that could cause bubbles in other sectors of the economy, Action Economics said.
Ambac Financial Group (ABK) announced that it cut its quarterly dividend to a penny from seven cents per share and said it will suspend all new structured finance writings for six months. Standard & Poor's kept its hold rating but cut its target price.
Leading this week's economic data, the Institute for Supply Management's manufacturing index fell to 48.3 in February from 50.7 in January, showing a contraction in factory activity.
U.S. construction spending dropped 1.7% in January, more than the 0.7% decline that was expected, after a 1.3% drop in December.
Major automakers reported February sales on Monday. Sales at GM came in much weaker than expected -- dropping 13% year-over-year, reports Action Economics. Combined with better-than-expected results at Honda (+5%), but a little worse-than-expected results at Toyota (-3%), this implies that the industry is currently tracking little change from January's weak tally of 15.2 million units, says Action Economics.
Later this week, the market will focus on the ADP National Employment Report to see how nonfarm private employment is faring, after a surprising increase of 130,000 jobs in January. There will also be interest in the January durable goods orders and the ISM non-manufacturing survey, both due out on Wednesday. Investors are hoping that the sharp drop in the services seen in January won't be exacerbated by another bad report for February.
NYMEX April WTI crude oil futures, which hit a record intraday high of $103.90, rose 61 cents to $102.45 on Monday. Geopolitical concerns dominated the market after reports two U.S. missiles hit a house in southern Somalia on Monday in an attack Washington said was directed at "known terrorists." Prices also were boosted by reports OPEC members Venezuela and Ecuador sent troops to their borders with Colombia after Colombia bombed rebels inside Ecuador. Reuters reported that in Nigeria, attackers blew up a police houseboat on Bonny Island, an oil and gas export hub in southern Niger Delta.
There is still some fear the U.S. economic slowdown could spread, which could cause a reduction in oil demand. Some experts say they can find no reason for crude oil
to be above $100 a barrel, says S&P MarketScope.
Comex April gold futures rose $9.20 to a record $984.20 per ounce Monday afternoon in a flight to safety from inflation and speculative fund buying as oil prices soared toward record heights.
Among other stocks in the news on Monday, Thornburg Mortgage Inc. (TMA) shares plunged after the company said that it has failed to meet the majority of the $270 million in additional margin calls on its reverse repurchase agreement borrowings outstanding as of Feb. 29. Thornburg said it is either selling portfolio securities or raising more debt or equity capital to meet all outstanding margin calls.
Arthrocare (ARTC) said its Board has begun to evaluate the company's financial and strategic alternatives to enhance shareholder value. The Board will consider the full range of available options, including a recapitalization, a stock repurchase, a sale or disposition of one or more corporate assets and/or a strategic business combination.
European indexes were trading lower on Monday. In London, the FTSE 100 index fell 1.12% to 5,818.60. In Paris, the CAC 40 index slid 1.00% to 4,742.66. Germany’s DAX index was down 0.86% at 6,689.95.
Asian markets finished weaker. Japan’s Nikkei 225 index dropped 4.49% to close at 12,992.18. In Hong Kong, the Hang Seng Index ended down 3.07% at 23,584.97.
Treasuries fell modestly on some mild profit taking after a huge rally on Friday. The 10-year note eased 06/32 in price to 99-23/32 for a yield of 3.53%. The 30-year bond fell 09/32 to 99-06/32 for a yield of 4.42%.