Updated from 3:47 p.m. EST
Stocks closed moderately lower Monday as an early session selloff was leavened late in the trading day by another round of bargain hunting around a key technical level.
Dow Jones Industrial Average
fell 57.85 points, or 0.6%, to 9710.83, the
dropped 6.72 points, or 0.6%, to 1043.63, and the
dipped 20.65, or 1.1%, to 1909.61. Traders said the Nasdaq's 50-day moving average of roughly 1900 proved to be viable support.
The Dow and S&P 500 have fallen in eight of the 10 sessions since hitting new 17-month highs on Nov. 3.
Volume on the New York Stock Exchange was 1.33 billion shares, while 1.85 billion shares exchanged hands on the Nasdaq.
"Momentum oscillators remain overbought and are starting to turn down, a possible prelude to a market corrective phase," Richard McCabe, Merrill Lynch's chief market analyst, said in a research note. Still, "the recent new recovery highs on the cumulative
Big Board and Nasdaq breadth indexes have positive major trend implications," he continued.
Technical analysts use momentum oscillators to determine when a market top (or bottom) has occurred. A technician like McCabe would call stocks overbought when the rate at which prices increase begins to slow, something like a car decelerating before making a turn.
Sean Martin, head trader at A. Gary Shilling, offered a fundamental explanation for the same phenomenon. He believes that, "terror fears got the selling started overnight, but the market had been set up for a sell-off for some time," after pricing in strong earnings and growth before the data confirmed it. He continued, "growth has been strong but earnings have been tepid," disappointing the market.
Terrorism concerns also weighed on global stock markets. Over the weekend, two U.S. helicopters collided in Iraq, killing 17 American soldiers, and coordinated suicide bombings at two synagogues in Istanbul, Turkey, killed at least 23 people. Al Qaeda claimed responsibility for the Turkey bombings and threatened to attack Tokyo if Japan sends troops to Iraq.
Treasuries benefited from a "flight to safety" trade with the 10-year Treasury rising 7/32, its yield falling to 4.19%. Gold, however, declined 1.63% to $391.50, unable to extend last week's multiyear highs. The dollar improved slightly vs. the euro and the Japanese yen.
In U.S. economic news, September business inventories grew by 0.3%, after declining 0.4% in August. Economists had expected inventories to be unchanged. The unexpected rise may prompt an upward revision to third-quarter GDP but "will likely translate into weaker growth in the current quarter, with a larger portion of inventory rebuilding accomplished more quickly than expected," commented Peter Kretzmer, senior economist at Bank of America.
Separately, the November Empire State manufacturing survey improved to 41.0 from 34.1 in October, ahead of consensus expectations for a 28.0 reading.
On the mutual fund scandal front,
agreed to pay $50 million to settle charges regarding its practices for selling mutual funds.
fired six employees for actions related to improper mutual fund timing. Morgan Stanley's shares rose 9 cents, or 0.2%, to $55.03, while Bear Stearns improved 17 cents, or 0.2%, to $72.07.
In M&A news,
Travelers Property Casualty
is being acquired by
in a stock-swap deal valued at $16 billion. Travelers Property's shares fell 11 cents, or 0.5%, to $23.89 while St. Paul improved 97 cents, or 2.6%, to $37.74. CSFB upgraded St. Paul to outperform from neutral, and set a 52-week price target of $44. J.P. Morgan downgraded Travelers Property to neutral from overweight. The broker believes that the merger of Travelers and St. Paul will increase the risk profile of Travelers Property.
announced Monday that it will sell its fibers unit to two subsidiaries of Koch Industries for $4.4 billion. DuPont shares dipped 46 cents, or 1.1%, to $39.73.
In earnings news,
third-quarter profit improved to 56 cents per share, from 43 cents a year ago. The home-improvement chain beat analyst expectations by 3 cents a share. The company's shares declined 72 cents, or 1.2%, to $57.91.
Toys R Us
reported a wider-than-expected third-quarter loss of 18 cents per share, after losing 13 cents in the same quarter last year. Analysts had expected the loss to narrow to narrow to 10 cents. The company also announced plans to close poorly performing stores, and cut employees. The toy merchant's shares collapsed $1.56, or 11.2%, to $11.18.
Airline shares got hit hard, as terror fears escalated.
dropped 46 cents, or 3.9%, to $11.40. Delta and other airline issuers weighed heavily on the
Dow Jones Transportation Average
, which slumped 2.8% on the day.
Merrill downgraded Internet stocks, as part of a strategic shift that reallocated funds to other technology sectors. Shares of
dipped $1.27, or 3.1%, to $40.36, while
shares stumbled $2.09, or 4%, to $50.36.
Overseas markets finished sharply lower Monday, paving the way for Wall Street's decline. London's FTSE fell 1.3% to 4339, and Germany's Xetra DAX dropped 3.2% to 3675. In Asia, the Nikkei fell 3.7% to 9787, and Hong Kong's Hang Seng declined 1.7% to 11,997.
Tomorrow, the earnings calendar will be dominated by retailers, including
In addition, the Consumer Price Index will be released at 8:30 a.m. EST and is expected to rise 0.1% in October, after rising 0.3% in August. Many economists, and
officials themselves, stress that the Fed will keep rates low until inflation picks up. However, tomorrow's CPI figure is unlikely to raise any red flags for policymakers.