Stocks Pull Back Ahead of Fed Meeting
NEW YORK (TheStreet) -- The major U.S. equity indices finished lower Monday as disappointing economic data from both at home and China prompted a mild bout of profit-taking ahead of the Federal Reserve's policy meeting later this week.
Investor sentiment was also dinged by news of Greece's struggles to convince international lenders to provide the country with more aid, which is needed to prevent a disorderly default in the nation. The latest challenges for Greece arose ahead of the German Constitutional Court's ruling Wednesday on whether the permanent European Stability Mechanism fund will extend aid and bond buying to troubled eurozone nations.
U.S. stocks broke out to multi-year highs late last week in the wake of the European Central Bank detailing its willingness to step up to keep the eurozone together and buy sovereign bonds if necessary. Wall Street is also expecting the Fed to announce another round of quantitative easing on Thursday.
The Dow Jones Industrial Average lost more than 52 points, or 0.39%, to close at 13,254. The blue-chip index, which advanced 2.1% in the previous three sessions, is now up 8.52% so far in 2012.Breadth was negative with losers ahead of winners, 19 to 11. The heaviest Dow decliners were 3M (MMM), Boeing (BA), Bank of America (BAC), Cisco (CSCO) and Intel (INTC). Intel gave back 3.9%, extending Friday's losses after the world's biggest semiconductor company lowered its financial outlook, citing challenging macroeconomic conditions. The biggest percentage gainers were Hewlett-Packard (HPQ), IBM (IBM), Kraft Foods (KFT) and Verizon (VZ). Hewlett-Packard shares rose 0.82% after the top PC maker increased its number of planned layoffs by 2,000 to 29,000. Shares of JPMorgan Chase (JPM) edged up following a report that the company's board is considering lower 2012 bonuses for CEO Jamie Dimon and other top executives in the wake of a multibillion-dollar trading scandal. Shares of the bank slipped 1.4% on Monday. In other big bank news, Citigroup (C) is expected to decide this fall how to fine-tune next year's compensation plan to win broader support among investors, people familiar with the situation told The Wall Street Journal. Citigroup shares added 0.75%. The S&P 500 fell 9 points, or 0.61%, to settle at 1429. The Nasdaq was off more than 32 points, or 1.03%, at 3104. The strongest sectors in the broad market were basic materials, consumer cyclicals, and transportation. The weakest were consumer non-cyclicals, technology, and conglomerates. Volume totaled 3.2 billion on the Big Board and 1.57 billion on the Nasdaq. On Monday, China's customs bureau said that Chinese imports declined 2.6% year over year in August, missing the 3.5% increase economists in a Reuters survey were expecting, and stoking worries about slowing demand in the world's second-largest economy. Exports rose 2.7%, weaker than the prediction of a 3% increase. Furthermore, over the weekend, data showed that the country's industrial output decelerated to 8.9% in August to the worst levels since May 2009. "Today's Chinese trade data highlight the continued weakness in demand in the largest global consumer of commodities," said Ross Strachan, an economist at Capital Economics. But "markets have taken some comfort from the increased likelihood of additional stimulus measures ... we would caution that any policy loosening may only alleviate some of the problems rather than lead to a rapid rebound." The major U.S. equity averages finished a banner week with mild gains on Friday, extending multi-year highs, as investors looked ahead to the potential for more stimulus from the Fed in light of the shortfall in nonfarm payrolls. Friday's weak employment data "added further weight to our call for QE3 and an extension beyond late-2014 of the low rate period at the September 12-13 FOMC," said Societe Generale economists. "On QE3, we expect the Fed to announce a program focusing on both Agency-MBS (Mortgage-Backed Securities) and Treasuries, but rather than pre-announcing an amount we believe that the Fed may opt to announce a time period allowing for greater flexibility." On the unveiling of the ECB's bond buying roadmap, "the markets do not like uncertainty and Mario Draghi exposed some of the plans to absorb the effect of the debt problem in Europe for the time being," commented Brian Amidei, partner and managing director at HighTower. "This is yet another band-aid on a large wound that needs proper mending. It will buy some time for a cure but there are still many systemic challenges ahead. For now, the markets should have had a positive response." The economic calendar in the U.S. Monday includes the consumer credit report at 3 p.m. EDT. Economists expect that consumer credit rose by $10 billion in July after expanding by $6.5 billion in June. The FTSE in London was up 0.18% Monday, while the DAX in Germany was up 0.16%. The Hong Kong Hang Seng index finished up by 0.13% and the Nikkei in Japan closed down 0.03%. The benchmark 10-year Treasury gained 4/32, diluting the yield to 1.659%. The greenback added 0.29%, according to the dollar index. October crude oil futures fell 12 cents to settle at $96.54 a barrel and December gold futures settled down $8.70 at $1,731.80 an ounce. On the corporate front, AIG (AIG) said the U.S. Treasury Department is selling $18 billion worth of its common shares to institutional investors. Shares finished down 2%. Transocean (RIG) agreed to sell 38 shallow-water drilling rigs to Shelf Drilling International for $1.05 billion. Shares shed 3.5%. Titan Machinery (TITN) shares plummeted 23.5% as the agricultural and construction equipment stores operator reduced its full-year earnings projections after posting a weaker-than-predicted quarterly profit in the face of the prolonged drought in the U.S. Midwest. Michael Kors (KORS) shares tumbled 4.5% after apparel and accessories company filed a registration statement for a proposed secondary public offering.
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