Traders weighed more recessionary economic data ahead of the Fed's interest rate decision Tuesday
U.S. stocks fell Monday afternoon as worries about the softening economy and its impact on corporate earnings led to profit taking on recent market gains. Traders weighed a report showing a decline in U.S. industrial production in November and continued weakness in a December reading on a regional survey of economic conditions.
Details on Wall Street trader Bernard Madoff's alleged "ponzi" scam were emerging Monday, including which firms may have had exposure. Financial markets still await a government decision on what, if any, aid the U.S. auto industry will receive. Federal Reserve Chairman Ben Bernanke reportedly said last week central bank is "extremely reluctant" to lend to car makers.
Tech stocks got hit after a Goldman Sachs analyst downgraded Apple Inc. (AAPL) on Monday.
Finally, this week's FOMC meeting is expected to yield at least a 50 basis points cut in Fed Funds rate.
On Monday, the Dow Jones industrial average fell 65.15 points, or 0.75%, to 8,564.53. The broad S&P 500 index lost 11.16 points, or 1.27%, to 868.57. The tech-heavy Nasdaq composite index shed 32.38 points, or 2.10%, to 1,508.34.
On the New York Stock Exchange, 23 stocks were lower in price for every eight that advanced. On the Nasdaq, the ratio was 21-7 negative.
Bonds were higher in price. The dollar index was softer. Crude oil futures fell.
The Federal Reserve kicked off its two-day policy meeting Monday. Policymakers are widely expected to announce a 50 basis points cut in the benchmark Fed funds target rate to 0.5% at the conclusion of the meeting on Tuesday.
The Wall Street Journal reports that, as the Federal Reserve considers rate cuts Tuesday, U.S. interest rates are approaching those of Japan, the nation which for years boasted the most easy monetary policy among major economies. The shrinking rate gap could drive Japanese investors from the U.S., leading to a further weakening of the dollar. Many economists expect the Fed to cut its policy rate by half a percentage point to 0.5% Tuesday, nearing the Bank of Japan's 0.3%. The U.S. rate hasn't been lower than Japan's since 1993.
The Bush Administration played down any auto loans for Detroit until the president returns from the Mideast, though promising prompt action then. The Wall Street Journal reports the package could be a much larger $10-40 billion than the $14 billion bridge loan previously discussed. Meanwhile, stimulus plans by the Obama Administration could top $1 trillion, according to weekend press reports reports.
Exposure to the $50 billion alleged Manoff Ponzi scheme was traced to several European financial institutions, including RBS, Paribas, Santander, and Man Group.
In economic news Monday, U.S. industrial production fell 0.6% in November from a revised 1.5% surge in October (1.3% previously). That knocked capacity utilization down to 75.4 from a revised 76.0% (76.4% previously). Manufacturing production dove 1.4% with motor vehicles and parts down 2.8%. Excluding vehicles, production would have been down 0.5%. Utilities rose 1.6% after a 0.7% increase in October (revised up from 0.4%). Mining climbed 2.5% after a revised 7.2% increase in October (6.1% previously).
The New York Fed's Empire State manufacturing survey slipped to a new record low of negative 25.8 in December from negative 25.4 in November. The index was slightly better than the negative 28 expected by the market. The price indexes (paid and received) both turned negative in December. On the brighter side, the expectations index (six months ahead) improved to 19.5 from 13.5.
"Overall, a weak report but in line with last month and with expectations," according to S&P Economics.
The U.S. Treasury's TIC report showed that foreigners bought an eye-popping $286.3 billion in U.S. assets in October, up from a revised $142.6 billion in September ($143.4 billion previously). Of that $286.3 billion, private accounts bought $274.5 billion, and official accounts picked up $11.9 billion. Demand for Treasuries remained solid with coupon purchases rising $34.7 billion. Demand for agency debt remained very weak, with sales of $50.2 billion, alongside sales of $13.1 billion in corporate bonds. China bought $65.9 billion in Treasuries, followed by purchases of $34.2 billion from the Caribbean (proxy for hedge funds), and the U.K. (OPEC) bought $21.9 billion.
The data is much stronger than expected and is a positive for the bond market, according to Action Economics.
European stocks finished with modest losses. London stocks fell 0.13%, Paris was lower by 0.87%, Frankfurt was down 0.18%. Asian equity markets advanced, with Tokyo stocks rising 5.21%, Hong Kong up 1.96%, and Shanghai higher by 0.52%.
The Bank of Japan's Tankan survey for December plunged to -24 from -3 in September, showing that business sentiment among Japan's largest manufacturers deteriorated over the past quarter at the fastest pace in more than three decades, according to Dow Jones. The level was within market expectations. Action Economics reports that December's Tankan survey results "represented the sharpest quarter-over-quarter drop since 1975, underscoring the dramatic weakening in the economy over the past three months, with the survey projecting for it to erode further to -36 in March." Things have weakened in the wake of the recent global financial turmoil, including the squeeze on Japanese companies from the appreciating yen.
China's GDP growth will probably slow to 5 or 6% in 2009, according to IMF Managing Director Strauss-Kahn, below the IMF November projection for 8.5% growth, which it had trimmed from the 9.3% forecast in the October World Economic Outlook.
In U.S. company news, Goldman Sachs reportedly downgraded its investment rating on Apple to neutral from buy.
Merrill Lynch downgraded its rating on JP Morgan Chase & Co. (JPM) to underperform from neutral.
Huntsman Corp. (HUN) said it has terminated its merger agreement with Hexion Specialty Chemicals, Inc. The company said it has also reached an agreement with Hexion, Apollo Management, L.P. and certain of its affiliates to settle Huntsman's claims against Hexion, Apollo and its affiliates arising in connection with Huntsman's merger agreement with Hexion. The compamny said payments to be made to Huntsman under the settlement agreement total $1 billion.
Honeywell (HON) said it reaffirmed its 2008 financial guidance, with expectations for sales of about $36.6 billion, EPS of $3.76-$3.80, free cash flow of $3.2 billion, excluding cash taxes relating to sale of its Consumable solutions business. For 2009, Honeywell sees sales of $33.6 billion-$35.3 billion, EPS of $3.20-$3.55, and cash flow of $3.0 billion-$3.2 billion.
MGM Mirage (MGM) and Ruffin Acquisition, LLC entered into an agreement whereby MGM, through its wholly-owned subsidiary The Mirage Casino-Hotel, will sell Treasure Island Hotel & Casino to Ruffin Acquisition for $775 million. MGM said the purchase price is to be paid at closing as follows: $500 million in cash and $275 million in secured notes bearing interest at 10%, with $100 million payable not later than 175 days after closing and $175 million payable not later than 24 months after closing.
In other U.S. markets Monday, the 10-year Treasury note was up 15/32 at 110-24/32 for a yield of 2.52%, while the 30-year bond up 46/32 at 129-20/32 for a yield of 2.98%.
The U.S. dollar index was lower at 82.28.
January West Texas Intermediate crude oil futures was down $1.77 to $44.51 per barrel.
February gold futures were up $17.00 to $836.40 per ounce.