Another Low Bites the Dust

Updated from 4:12 p.m. EDT

Stocks sank further Monday, with the S&P 500 making a new low for the year, despite a positive report on home sales, some healthy earnings news and a flurry of acquisition activity on the opening day of the Democratic National Convention in Boston.

The S&P hit its lowest close of the year, down 2.13 points, or 0.2%, to 1084.07. Meanwhile, the Nasdaq Composite sank to a new low for the third time in four sessions, closing down 10.07 points, or 0.54%, to 1839.02. Earlier, it reached a new intraday low for the year at 1829. The Dow Jones Industrial Average ended down by a fraction at 9961.92, after dropping as low as 9914 during the session.

In other markets, the 10-year Treasury note was down 11/32 to yield 4.48%, while the dollar was weaker against the euro and the yen. In New York, oil futures closed down 27 cents, or 0.6%, closing at $41.35 a barrel.

Volume stayed relatively high, with more than 1.4 billion shares trading on the New York Stock Exchange and more than 1.6 billion changed hands on the Nasdaq. Decliners held about a 2-to-1 majority on both exchanges.

"There is such a pronounced concern about earnings going forward, that it has really overshadowed the positive earnings quarter that we've seen," said Barry Hyman, equity market strategist with Ehrenkrantz King Nussbaum. "The market needs a dose of good medicine. Just because we're breaking out of our trading range to the downside doesn't mean we're in a bear market. We're looking at decent earnings support, and valuations are becoming more interesting by the day."

Hyman has his sights set on Friday's advance GDP report as a possible catalyst for a turnaround. "Everyone's concerned about a slowdown in the economy," he said, referring to the surprise downward revision of the first quarter's GDP figure in June, from 4.4% to 3.9%. "That caught everyone by surprise. Now, we're looking for some good news to turn the tide somehow."

On Friday, economists expect the government to say the economy expanded at a rate of 3.7% in the second quarter, down from 3.9%.

Existing-home sales jumped unexpectedly in June to an annualized 6.95 million, a record high, from a revised 6.81 million in May, according to the National Association of Realtors. Economists had expected sales to dip to 6.65 million. While homebuyers continue to take advantage of low mortgage rates, speculation persists on Wall Street about what rising interest rates might mean for the red-hot real estate market that has been one constant bright spot in the embattled economy of the last few years.

The Democratic Party, its supporters, a slew of media types, and bands of protesters gathered amid tight security in Boston for the first day of the convention, leading up to a November election that remains a dead-heat in the polls and a big question mark for investors. The presumed nominee, Sen. John Kerry, will attempt to introduce and define himself to the American public in his bid to unseat the incumbent, President Bush. Market watchers say uncertainty about the election remains a major drag on the markets, since policy direction, from tax cuts to fighting terrorism, is believed to be at stake.

On a tactical trading basis, Jeffrey Saut, chief investment strategist with Raymond James, is expecting the market to slip further this week, make a new bottom and create a buying opportunity. He said the message of the Democrats, which includes rolling back the Bush tax cuts for the upper class, will renew fears that Bush will lose in November and create a crescendo climax of selling.

"To me, the market is some combination of fear, hope and greed, only loosely connected to the business cycle," said Saut, who correctly predicted that traders would fail in an early bid to send the markets higher. "I think it would be fitting to see the S&P and Dow marginally break under their lows later this week and flush the crowd out right before they turn up and rally."

Violence flared in Iraq, where insurgents shot and killed Mussab al-Awadi, a top Interior Ministry official, and two of his bodyguards on Monday, according to a report from Reuters. Elsewhere, the U.S. military said a suicide car bomb exploded outside an American base near the northern city of Mosul, killing an Iraqi woman, her child and an Iraqi guard. Three U.S. soldiers and two Iraqi security staff were wounded.

Gunmen also opened fire on five women who work as cleaners for Bechtel, a U.S. firm, in the southern city of Basra, killing two and wounding two others, one survivor said. The women were waiting for a bus to take them to work when they were attacked.

On the corporate front, several big companies were making mergers-and-acquisition news Monday, including Mylan Labs ( MYL), the generic drugmaker, which is acquiring King Pharmaceuticals ( KG) for about $4 billion. Mylan shares closed down $3, or 16.2%, to $15.51, while King shares were up $2.52, or 24.3%, to $12.89.

AT&T ( T) could also see interest Monday after Newsweek reported that several former executives are now working with the private equity firm Kohlberg, Kravis, Roberts. The story didn't report specifics of the current discussions but said KKR and at least one other buyout firm have approached AT&T about an acquisition in the past year. Shares closed up 71 cents, or 5.1%, to $14.73.

A huge banking deal is being sealed overseas. Spanish titan Santander agreed to buy England's Abbey National for $16.3 billion. The combination, which includes a roughly 28% premium for Abbey National shareholders, will create the 10th-biggest banking company in the world.

Also, Google announced it will sell about 24.6 million shares for an estimated price of between $108 and $135 a share in its long-awaited initial public offering. It will trade on the Nasdaq, under the ticker symbol GOOG.

In earnings news, American Express ( AXP) reported a 15% jump in second-quarter profit and beat Wall Street's estimates by a penny. The financial services giant said it earned $876 million, or 68 cents a share, compared to $762 million, or 59 cents a share, a year ago. Its shares closed up 79 cents, or 1.6%, to $48.90.

Humana's ( HUM) second-quarter earnings rose 17% from a year ago to $80.8 million, or 50 cents a share, or 46 cents a share excluding a gain and a charge. Revenue rose 13% to $3.43 billion. Analysts had been forecasting earnings of 39 cents a share on revenue of $3.4 billion. The health insurer also guided up for the full year. Humana shares closed up 87 cents, or 5.1%, to $17.92.

BellSouth ( BLS) earned $939 million, or 51 cents a share, in its second quarter, compared to $908 million, or 49 cents a share, last year. Analysts had expected 50 cents a share in the latest quarter. The stock ended up 91 cents, or 3.5%, to $26.81.

And HCA ( HCA) earned 65 cents a share before a charge, matching estimates on a 6.7% revenue increase to $5.83 billion. HCA shares closed down 48 cents, or 1.2%, to $40.27.

Overseas markets were lower, with London's FTSE 100 closing down 0.9% to 4287 and Germany's Xetra DAX falling 1.2% to 3752. In Asia, Japan's Nikkei fell 1.3% to 11,285, while Hong Kong's Hang Seng fell 0.6% to 12,320.

On Tuesday, more than 55 companies are scheduled to report quarterly earnings before the open, including such notables as DuPont ( DD), Lockheed Martin ( LMT), Verizon ( VZ) and U.S. Steel ( X).

At 10 a.m. EDT, the Conference Board is expected to report that its consumer confidence index inched up from 101.9 to 102.0 in July, and the government will release data on new home sales in June. Economists predict sales dipped to an annualized 1.261 million, from the 1.369 million recorded in May.

After the close, another 65 companies are expected to report results, including Wellpoint Health ( WLP), Monster Worldwide ( MNST), AFLAC ( AFL), and PeopleSoft ( PSFT).

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