Stocks: A Chilly Start to December
Stocks closed lower Monday as traders demonstrated a reluctance to push the market higher after last week's string of sharp gains. Uncertainties about the outlook for the economy, interest rates and housing are returning to haunt the market, amid worries about a big downgrade of debt sold by structured investment vehicles. Investors also weighed comments from officials on efforts to help the beleaguered housing sector and crude oil's recent drop below $90 per barrel.
On Monday, the Dow Jones industrial average ended lower by 57.15 points, or 0.43%, at 13,314.57. The broader S&P 500 index shed 8.72 points, or 0.59%, to 1,472.42. The tech-heavy Nasdaq composite index fell 23.83 points, or 0.9%, to 2,637.13.
Activity in the broader market was negative Monday. On the New York Stock Exchange, 19 shares declined in price for every 14 that advanced. Nasdaq breadth was 20-10 negative.
The S&P 500 and the Dow had moved higher four sessions in a row after a brutal November. At one point, the S&P 500 was down 9% since Nov. 1 before ending the month down 4.4%.
Moody's Investors Service is preparing the biggest credit rating cuts since subprime
mortgages contaminated the bond market back in August, reports Bloomberg, foreshadowing losses for investments that pay Florida teachers and money market funds. Moody's may lower ratings on $105 billion of debt sold by structured investment vehicles after the net asset values of 20 SIVs sponsored by firms including Citigroup (C) declined to 55% from 71% a month ago, Moody's said in a statement. The assets were valued at 102% in June.
Treasury Secretary Henry Paulson said the government and banks will "soon" announce a plan to keep subprime mortgage borrowers "with steady incomes and relatively clean payment histories" from losing their homes, according to a Bloomberg report. He proposed a plan that, if enacted by Congress, would let state and local governments "temporarily broaden their tax- exempt bond programs to include mortgage refinancings."
Meanwhile, Boston Federal Reserve Bank President Eric Rosengren called on the Federal Housing Administration to look for ways to "better meet borrowers' needs." "Our focus on the opportunities for the FHA program to play a role in alleviating this crisis does not represent advocating a government bailout of lenders, investors, or reckless borrowers," he said. "Rather, I am advocating using existing programs for what they were designed to do -- provide an option for low- and moderate-income borrowers to obtain financing at more affordable rates."
In economic news Monday, the U.S. ISM manufacturing index was 50.8 in November, about the same as the 50.9 reading in October and just over the 50.5 figure that markets had expected. The subcomponents of the report were mixed. Employment fell to 47.8 from 52.0, while new orders edged up to 52.6 from 52.5 and the production index rebounded to 51.9 from 49.6. Prices paid rose to 67.5 from 63.0. The release was about as expected, the fifth consecutive slip in the index may unnerve markets, says S&P Economics.
The market's main focus this week will be Friday's release of nonfarm payrolls for November, which could determine if and how much the Fed cuts rates next week.
January NYMEX crude oil futures overcame some earlier weakness and rose 60 cents to $89.31 per barrel Monday amid reports that ministers from the Organization of Petroleum Exporting Countries said the group may not need to raise output at a meeting this week because of adequate stockpiles.
Among the stocks in the news Monday, Activision (ATVI) will merge with Vivendi Games, the interactive entertainment business of Vivendi. Vivendi will buy new Activision shares for $27.50 per share, or $1.7 billion total. After closing the deal, the new Activision Blizzard will buy back $4 billion in shares.
Amgen (AMGN) was lower Monday after its Aranesp chemotherapy drug failed to show significant results over a control group in treating breast cancer patients.
Metlife (MET) says it expects earnings of $1.40 to $1.45 in the fourth quarter, compared to $1.36 a year ago. In 2008, it expects earnings of $5.90 to $6.20.
International Business Machines (IBM) announced a $1 billion stock buyback plan.
Tribune Co. (TRB) announced it has won key approvals needed by the firm to own TV stations and newspapers in the same market. The company is going private, a deal expected to close by the end of the year.
Shares of E*Trade Financial (ETFC) fell Monday after Banc of America reportedly downgraded its rating on the shares to sell from neutral.
Research in Motion (RIMM) shares fell after Morgan Keegan downgraded its opinion on the shares to market perform from market outperform.
VeriFone (PAY) shares lost nearly half their value Monday after the company said its unaudited interim consolidated financial statements for the three months ended January 31, 2007, the three and six months ended April 30, 2007, and the three and nine months ended July 31, 2007, should no longer be relied upon, principally due to errors in accounting related to the valuation of in-transit inventory and allocation of manufacturing and distribution overhead to inventory.
European stocks ended modestly lower on Monday. In London, the FTSE 100 index was off 0.71% to 6,386.60. In Paris, the CAC 40 index fell 0.72% to 5,629.46. Germany's DAX index declined 0.42% to 7,837.26.
Major Asian markets finished mixed Monday. Japan's Nikkei 225 index lost 0.33% to 15,628.97. In Hong Kong, the Hang Seng index edged up 0.05% to 28,658.42. The Shanghai composite index was off 0.07% to 4,868.61.
Treasury prices posted gains Monday. The 10-year note was higher at 103-5/32 for a yield of 3.87%, while the 30-year bond was higher at 111-02/32 for a yield of 4.33%.