U.S. stocks finished with losses Monday, retreating in step with a slide in commodities prices and a sell-off in the Treasury bond market as the dollar index rallied against key foreign currencies.
Financial stocks led the market lower, weighed down by ratings downgrades of certain regional banks by influential bank analyst Dick Bove, and a Wall Street Journal report that indicated the U.S. government may require Bank of America (BAC) to raise more capital.
Homebuilding stocks also were big losers.
On Monday at 2:21 p.m. ET, the 30-stock Dow Jones industrial average was lower by 98.55 points, or 0.99%, at 9,873.63. The broad Standard & Poor's 500-stock index was down 11.41 points, or 1.06%, at 1,068.19. The tech-heavy Nasdaq composite index shed 12.84 points, or 0.60%, to 2,141.63.
On the New York Stock Exchange, 23 stocks were lower in price for every seven that advanced. Breadth on the Nasdaq was 19-8 negative. Trading was moderately active.
Treasuries were lower despite a well-received sale of $7 billion in five-year TIPS Monday afternoon.
European stocks gave up earlier gains, with benchmark indexes ending lower by 0.97% in London, 1.71% in Frankfurt, and 1.68% in Paris. In Asia, Tokyo stocks rose 0.77%, while Shanghai edged higher by 0.06%. Financial markets in Hong Kong were closed for a holiday.
Unconfirmed reports cited by S&P MarketScope said a futures-related sell program triggered the selling that extended to Europe. Another unconfirmed report said the futures deal was mistake, reports S&P.
Investors continue to focus on corporate earnings. Results for the third quarter have been good so far, notes S&P MarketScope,, which is one reason the stock market is up so sharply since March.
This week's data calendar is light. There were no significant economic reports scheduled for release Monday. Data highlights this week include third-quarter gross domestic product (Thursday), along with September durable goods (Wednesday), consumer confidence (Tuesday), new home sales (Wednesday), personal income and consumption, the Chicago PMI, and the third-quarter employment cost index (all Friday).
The U.S. Treasury may lock in low rates at the long-end by shifting its issuance further out the yield curve by boosting sales of 10-year notes and 30-year bonds by 40% next year to $600 billion, according to a Bloomberg report citing FTN Financial. That would lengthen the average due date of outstanding debt from 49-months to 72-months. The article presumes this will steepen the yield curve sharply and could mean a second straight year of losses on long-term Treasuries.
A Bloomberg survey targets a weighted average estimate of 4.19% on the T-note by 2011 compared to 3.50% today, while the steepening of the curve would help banks continue to recapitalize. Yet this would complicate the Federal Reserve's attempts to stabilize the housing and consumption recovery as the last Fed purchase of Treasuries is conducted on Thursday.
Fedspeak will be "blacked out" this week as the Fed calendar goes quiet ahead of the Nov 3-4 FOMC meeting, reports Action Economics. Still, there has been plenty of speculation of late about the Fed's exit strategy, most recently in the FT.com, which suggested some watering down of the "extended period" rhetoric as a first step to unwinding extreme accommodation. In company news Monday, Rochdale analyst Dick Bove downgraded SunTrust Banks (STI) and Fifth Third Bancorp (FITB) to sell from neutral. The firm also downgraded U.S. Bancorp (USB) to neutral from buy. Last week, SunTrust reported a third-quarter loss of 76 cents per share and Fifth Third posted a 20-cent loss, while USB posted operating earnings per share (EPS) of 30 cents.
Carl Icahn announced that he informed the board of directors of Yahoo (YHOO) that he was resigning as a director of the firm. Icahn told the board that in his view there was not a need at this time for an activist director at Yahoo.
In earnings news, Verizon Communications (VZ) posted third-quarter adjusted earnings per share of 60 cents, vs. 66 cents EPS one year earlier, as higher operating expenses offset a 10% operating revenue rise. Wall Street was looking for EPS of 59 cents.
Corning (GLW) posted third-quarter non-GAAP EPS of 42 cents, 46 cents EPS one year earlier, on a 4.9% sales drop. Wall Street was looking for EPS of 39 cents. Corning said the improvement it has seen over the past two quarters has increased its optimism for the fourth quarter.
RadioShack (RSH) reported third-quarrter EPS of 30 cents, vs. 38 cents EPS one year earlier, on a 3.1% revenue drop. The company said its financial performance improved in the latter part of the third quarter, primarily driven by its strong mobility business combined with an economy showing some signs of potential stabilization.
The McGraw-Hill Companies (MHP) posted third-quarter EPS of $1.07, vs. $1.23 EPS one year earlier, on an 8.4% revenue decline. Wall Street was looking for EPS of $1.05. With market conditions continuing to weaken in school education and advertising, McGraw-Hill expects 2009 revenue to decline by about 7% vs. previous its forecast of a 5.5% to 6.5% drop. But, with stringent cost controls, the company now expects to achieve the top end of its 2009 EPS guidance of $2.20-$2.25 (excluding items), vs. its prior expectation of coming in at the low end of that range. (BusinessWeek is a unit of The McGraw-Hill Companies.)