U.S. stocks closed sharply lower Monday. Major equity indexes registered losses of 2% or more following weaker-than-expected reports on Japanese gross domestic product (GDP) and second-quarter earnings at Lowe's Companies (LOW), which came on the heels of last week's disappointing U.S. consumer sentiment and retail sales data.
Basic materials, financials, industrials, and consumer services were among the market sectors feeling the heat in Monday's session.
A sharply higher reading on the New York Fed's index of manufacturing activity for August -- and a better than expected reading on homebuilder sentiment -- did not appear to have much impact on equity indexes. The U.S. Treasury reported increased foreign demand for U.S. assets.
On Monday, the 30-stock Dow Jones industrial average was lower by 186.06 points, or 2.00%, at 9,135.34. The broad Standard & Poor's 500-stock index fell 24.36 points, or 2.43%, to 979.73. The tech-heavy Nasdaq composite index shed 54.68 points, or 2.75%, to 1,930.84.
Treasuries and global sovereign debt markets were higher Monday as money flowed back into the safety of government bonds. The dollar climbed higher, benefiting from the renewed demand for safety.
Gold and crude oil futures fell.
"Despite today's better than expected Empire State results, fears of a tepid consumer sector are discouraging hopes for a decent and sustained rebound in growth beginning this quarter," wrote Action Economics analysts Monday.
Market watchers cited by Standard & Poor's MarketScope said investors speculated that gains in riskier assets have outpaced prospects for economic growth.
Standard & Poor's chief technical strategist Mark Arbeter sees major averages bumping against major levels of technical resistance. "The major indices have run into stiff overhead resistance and we think the likelihood of a pullback is rising," Arbeter said in a note published late in Friday's session.
Among Monday's stocks in the news, Lowe's posted $0.51 vs. $0.63 second-quarter EPS on 9.5% lower same-store sales and 4.6% lower total sales. Lowe's sees $0.21-$0.25 third-quarter EPS, with same-store sales down 2%-5% and EPS of $1.13-$1.21 for fiscal 2010, with same-store sales down 7%-9% and total sales down approximately 3%. In response to the challenging economic environment, Lowe's said expansion in North America for 2010 will be below previously anticipated levels, new store openings will likely be in range of 35-45. Given this, has the company decided to no longer pursue several projects.
New York State's attorney general, Andrew Cuomo, is expected to file a lawsuit as soon as Monday against Charles Schwab Corp. (SCHW) alleging civil fraud related to the brokerage firm's marketing and sales of auction-rate securities, according to people familiar with the situation, according to a Journal report.
Gilead Sciences (GILD) announced that it has received a subpoena from the Office of the Inspector General of the Dept. of Health and Human Services requesting documents regarding the development, marketing and sales of Ranexa. Ranexa is approved for the treatment of chronic angina and was developed and originally commercialized by CV Therapeutics, a company that Gilead acquired in April 2009.
In economic news Monday, the NAHB homebuilder index, which has been on an improving trend since hitting a record low 8 in January, rose to 18 in August from 17 in July. The single family sales index was steady at 16; July's index was revised down to from 17 originally. The future sales index jumped to 30 from 26 in July. The index of prospective buyer traffic rose 3 points to 16 from a 13 last month, which was revised from 14.
"The data are a little better than expected, and likely feed off of some of the better housing starts and home sales figures in recent months," says S&P.
The Empire State manufacturing index surged to 12.1 in August, from -0.6 in July. It was 2.8 a year ago. Strength was broadbased. The employment index improved to -7.5 from -20.8 (-4.5 last August). The new orders index rose to 13.4 from 5.9 (-2.2 a year ago). Prices paid also rose to 13.8 from 10.4 (65.2 last August). Prices received fell to -12.8 from -8.3 (32.6 a year ago). The 6-month ahead general business conditions index rose to 48.2 from 34.0 (and from 34.6 last year), with the employment index rising to 10.2 from 6.5 (14.7 last year). The data are much better than expected, but aren't likely to give much support to the beleaguered equity markets today,
The market was awaiting a report later Monday on the NAHB Housing Market Survey. Also, the Fed was expected to release its quarterly Senior Loan Officer Survey Monday afternoon.
Japan's gross domestic product grew 0.9% in April-June, slightly short of a median market forecast of a 1.0% increase. That puts Japan in the camp of G7 countries that have pulled out of recession, along with Germany and France. The expansion, the first in five quarters, followed a revised 3.1% contraction in January-March and a record 3.5% fall in the final quarter of 2008. Bloomberg reports foreigners bought a total $90.7 billion of long-term equities, notes and bonds in May, more than forecast and compared with net sales of $19.4 billion in May, the Treasury said. Net buying of U.S. government notes and bonds totaled $100.5 billion, the most since records began in 1977, after net selling of $22.6 billion in May. Investors in Japan and the U.K. increased their holdings of U.S. assets as the Obama administration sold debt to finance a record budget deficit and fund economic stimulus spending. Total monthly foreign investment flows were down $31.2 billion in June, compared with sales of $65.7 billion in May.
The Federal Reserve extended its Term Asset-Backed Securities Loan Facility (TALF) program through March 31, 2010 to help promote credit flows to businesses and households, although the central bank does not expect to add any further types of collateral eligible for the facility. The Fed said despite the improvement in the financial markets in recent months, the markets for ABS and CMBS still remain impaired, and could remain so for some time.
The Wall Street Journal reports banks in the U.S. that failed in the past two years were in far worse shape than those that collapsed during the industry's last crisis, a looming problem for the government agency charged with insuring deposits. At three of the five banks that failed Friday, increasing the total to 77 so far this year, the financial hit to the agency's deposit-insurance fund is expected by the FDIC to be about 50% of their assets.
BB&T Corp. (BBT) announced that it had acquired the banking operations of one of the institutions that failed Friday, Colonial Bank of Montgomery, Ala. BB&T has acquired $22 billion in assets and assumed $20 billion in deposits in the transaction. The FDIC and BB&T have entered into a loss sharing agreement covering substantially all acquired loans and securities. Shares of BBT rose sharply on Friday ahead of the official announcement of this deal, so profit taking in the stock was likely Monday, according to S&P MarketScope.
Bloomberg News reports Wall Street firms are again recruiting commodities traders with promises of $1 million bonuses as prices of raw materials from oil to copper double. Less than a year after oil tumbled a record 54% and the Reuters/Jefferies CRB Index was suffering its biggest drop ever, Bank of America plans to boost commodity headcount by 25%. London-based Barclays Plc will increase staff about 6%. Morgan Stanley is recruiting traders in shipping. The banks declined to comment on compensation. "You are definitely seeing $1 million or more guaranteed bonuses coming back for 2009," said George Stein, managing director at New York-based recruitment firm Commodity Talent LLC.
Bloomberg News reports Citigroup (C), under pressure from the Obama administration to reduce executive compensation, may try to persuade energy trader Andrew Hall to accept stock instead of cash in 2010 after paying him about $100 million last year, people familiar with the matter said. Hall isn't likely to accept such an offer because his pay is based on the performance of the Phibro LLC unit he heads, not the bank's, making the sale of the business more likely as a way of placing him outside the government restrictions, the people said.
The Associated Press and other news services report President Barack Obama is willing to embrace insurance cooperatives over a government-run plan as the White House faces mounting opposition to its broad overhaul of the nation's health care system. Bowing to Republican pressure and offering political cover to fiscally conservative Democrats, Obama's administration signaled on Sunday that it is ready to abandon the idea of giving Americans the option of government-run insurance. The shift leaves open a chance for compromise with Republicans that probably would enrage Obama's liberal supporters but could deliver a much-needed victory on a top domestic priority.