Stocks Weakening as Wall Street Keeps Accentuating the Negative

A stellar earnings season? No matter, a weak futures market and overseas selloff say.
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Wall Street probably will sing the same tune this morning that it sang last week: Accentuate the negative.

It doesn't matter that the earnings season that's wrapping up has been great. It doesn't matter that the next one looks like it will be even better. What matters is that overseas markets are bleeding. That the

Fed

may go hiking next month. That valuations are, historically speaking, stretched to the limit.

The market doesn't look any good technically, either.

"The disturbing thing was, we were unable to hold Thursday's lows on Friday, which suggests there's more to the move," said Todd Clark, head of listed trading at

Charles Schwab

.

Further, last week the

S&P 500

futures had what chartists call an outside, down week -- a week in which the highs exceed the previous week's highs and the closing level is below the previous week's lows. It suggests a major turn in investor psychology. That was certainly what happened the last time there was an outside down week, in July of last year.

"Technically there's problems and fundamentally, you can make the same argument," said Clark. Nonetheless, Clark thinks that there's a chance the market could see an oversold bounce later in the week -- perhaps on Thursday, when the second-quarter

Employment Cost Index

and

gross domestic product

reports come out. But even if those numbers turn out to be market-friendly, the gains may be limited, as traders worry about the far more important July

employment report

, due out next week.

At 9 a.m. EDT, the

S&P 500

futures were off 7.9, more than 10 below fair value, indicating a significant drop at the open.

Treasuries were under a bit of pressure, most likely on account of continued weakness in the dollar. With no evidence that the

Bank of Japan

plans on coming into the market, the greenback was at 115.65 yen, down 0.85. Meanwhile, stronger-than-expected German consumer price data helped send the euro up 2 cents to $1.07 -- its highest level in two months.

The 30-year Treasury was down 13/32 to 89, putting the yield at 6.05%.

That dollar weakness has weighed on Tokyo stocks. On average, corporate treasurers in Japan have assumed an exchange rate of 116 yen to the dollar, according to the most recent

tankan

survey. With the dollar trading below that level, exporters may have a hard time meeting revenue goals. Moreover, import prices could fall, putting pricing pressure on domestic manufacturers.

The

Nikkei

slipped 43.1 to 17,491.34.

Despite government action to limit the effects of trouble at No. 2

chaebol

Daewoo

on the South Korean economy, Seoul stocks fell. The government yesterday pledged up to 20 trillion won ($16.6 billion) to investment-trust companies to counteract panic selling. It has also stepped up pressure on the conglomerate to sell off noncore businesses.

But investors remain unconvinced of Daewoo's viability. The

Kospi

fell 32.03, or 3.5%, to 872.94.

Hong Kong's

Hang Seng

fell 227.18, or 1.7%, to 12,866.52.

Europe's major bourses were getting whacked. In Frankfurt, the

Xetra Dax

was down 118.29, or 2.2%, to 5192.34. In Paris, the

CAC

was down 57.54, or 1.3%, to 4382.91. And in London, the

FTSE

was off 90.7, or 1.5%, to 6116.7.

Monday's Wake-Up Watchlist

By

Brian Louis

Staff Reporter

Earnings/revenue reports and previews

(Earnings estimates are from

First Call

.)

Browning-Ferris

(BFI)

reported third-quarter earnings of 60 cents a share, 2 cents ahead of the seven-analyst outlook and up from the year-ago 48 cents.

GTE

(GTE) - Get Report

reported second-quarter earnings of 79 cents a share, in line with the 14-analyst estimate.

Texaco

(TX) - Get Report

posted second-quarter operating earnings of 52 cents a share, beating the 20-analyst estimate of 49 cents but down from the year-ago 60 cents.

Union Carbide

(UK)

posted second-quarter earnings of 41 cents a share, a penny shy of the 16-analyst estimate and down from the year-ago 85 cents.

Mergers, acquisitions and joint ventures

Italy's

Autogrill

is acquiring

Host Marriott Services

(HMS)

for $529 million in cash. Under the deal, Host Marriott shareholders will receive $15.75 a share in cash from Autogrill in a tender offer expected to begin Aug. 2. Host Marriott closed Friday at 9 3/4. The tender will remain open for 20 business days and is subject to acceptance by at least two-thirds of Host Marriott shareholders. Host Marriott has 33.6 million shares outstanding.

NTL

(NTLI)

, with an assist from

France Telecom

(FTE)

, agreed to acquire the consumer cable telephone, Internet and television operations of

Cable & Wireless Communications

(CWZ)

. France Telecom has agreed to invest a total of $5.5 billion in NTL, including an initial investment of $1 billion previously announced on July 15.

Shire Pharmaceuticals

(SHPGY)

and

Roberts Pharmaceutical

(RPC)

agreed to merge in a deal valued at $1 billion.

Miscellany

IBM

(IBM) - Get Report

unveiled

IBM Enterprise Storage Server

-- code-named "Shark" -- a new generation of enterprise disk storage systems.

Philip Morris

(MO) - Get Report

is testing a new menthol version of its Marlboro brand, marking the company's most aggressive attempt in over a decade to break into the growing, minority-dominated menthol market,

The Wall Street Journal

reported. The

Journal

reported that cigarette distributors said the tobacco giant plans to test the new cigarette, called Marlboro Mild, in Pittsburgh and Atlanta beginning this fall.

With oil prices recovering, stocks of energy companies are roaring back into favor, but many investors think they will fare better in coming months with Canadian, rather than U.S., oil shares, the Heard on the Street column in the

Journal

reported. These investors see a positive outlook for Canadian natural-gas prices and improved economics for heavy-oil production, a Canadian specialty, the column said.

Forstmann-Leff Associates

, a pension-fund management concern, has been buying shares in

Rio Alto Exploration

,

Canadian Natural Resources

and

Renaissance Energy

, while Steven King, an analyst and portfolio manager with

Global Resource Investments

, is steering clients toward

Berkley Petroleum

, the column said. Elsewhere,

USAA Investment Management

has been buying

Canadian Occidental Petroleum

(CXY)

and

Anderson Exploration

, the article said.