Dow Snaps Four-Day Winning Streak


NEW YORK (TheStreet) -- The major U.S. equity averages finished lower Monday as the euphoria about the Federal Reserve's bold QE3 stimulus plan began to wear off.

Worries about the euro zone also soured investor sentiment as European Union leaders made little progress during weekend meetings to discuss the details of addressing the region's sovereign debt problems. A weak read on manufacturing activity in New York state was also a headwind.

The Dow Jones Industrial Average fell more than 40 points, or 0.30%, to close at 13,553. The blue-chip index, which began the session up more than 11% so far in 2012, snapped a four-day winning streak.

Within the Dow, losers outnumbered winners, 18 to 11 with Microsoft ( MSFT) finishing unchanged. The biggest percentage decliners were Alcoa ( AA), Bank of America ( BAC), Boeing ( BA), and Cisco ( CSCO).

The big banks were under pressure following a New York Times report that regulators plan to investigate whether several major U.S. banks failed to monitor transactions properly, allowing criminals to launder money. In addition to Bank of America's weakness, JPMorgan ( JPM) lost 0.91% and Citigroup ( C) was down 2.1%.

The Office of the Comptroller of the Currency, the federal agency that oversees the biggest banks, is leading the money-laundering investigation, according to the newspaper. The report said the OCC could soon take action against JPMorgan, and that the agency is also proving B of A.

U.S. Banks Subject of Money-Laundering Probe: Report

Dow gainers included AT&T ( T), Merck ( MRK), and Pfizer ( PFE).

AT&T shares got a lift after the communications giant said sales of Apple's ( AAPL) new iPhone 5 during the weekend ranked as its most successful iPhone product launch ever. The stock tacked on 0.91%.

The S&P 500 was down nearly 5 points, or 0.31%, to settle at 1461. The Nasdaq dropped more than 5 points, or 0.17%, to finish at 3179.

The weakest sectors in the broad market were basic materials, consumer cyclicals, and capital goods. Health care and consumer non-cyclicals finished in the green.

Volume totaled 3.34 billion on the New York Stock Exchange and 1.49 billion on the Nasdaq. Decliners topped gainers by a 2-to-1 ratio on the Big Board and 1.5-to-1 on the Nasdaq.

The major U.S. equity averages finished with solid gains Friday, capping a stellar week as the risk-on trade flourished thanks to QE3. The Dow finished the week up 2.15%, rising for the eighth time in the last 10 weeks and sixth time in the last seven sessions.

Kevin Mahn, chief investment officer and president, Hennion & Walsh, took a balanced view of the Fed's efforts, noting stocks still face a large number of unresolved issues, including Europe's debt woes.

"While I believe that the most recent Federal Reserve intervention (i.e. QE3) will help to provide some additional legs to the equity bull market rally that has essentially been in place since the market downturn hit bottom in March of 2009, I do also believe that there are certain headwinds and uncertainties confronting the potential for future economic and stock market growth," Mahn said.

Mahn cited the European debt crisis, the upcoming U.S. presidential and congressional elections, rising commodity prices and the elevated unemployment rate as potential stumbling blocks for equities.

While he sees risk that QE3 may exacerbate inflation pressures, Mahn's biggest takeaway from the Fed's plan was the central bank's pledge to keep its zero interest rate policy even after the U.S. economy begins to strengthen.

"Such comments would seem to point towards an attraction to equity allocations in growth oriented portfolios and the need to look to stock dividend strategies for additional sources of income over the next few years -- at least," he said, adding later: "QE3 might also provide further grease to a real estate recovery machine that currently stands as one of the brightest and most hopeful areas within the U.S. economy."

The FTSE in London finished off 0.37% Monday and the DAX in Germany closed down 0.11%.

A meeting of European Union finance ministers in Cyprus over the weekend resulted in a deadlock over how the region plans on combating the debt crisis, with the leaders unable to work past their differences on a banking union, the role of the European Central Bank and the conditions of bailout requests.

"Headlines over the weekend laid bare political divisions on how to introduce a pan-European regulatory framework," said Gareth Berry, a currency strategist at UBS. "Considering that a single supervisor is a necessary condition before the ESM could start recapitalizing eurozone banks, a continued deadlock could put a stop to the recent euro rally."

Before Monday's opening bell, the New York Federal Reserve said the Empire State manufacturing index dropped to -10.4 in September, compared with the read of -5.9 in August and consensus of -3, showing a quickening of contraction in the state's manufacturing sector.

The index for number of employees declined noticeably but remained a touch above zero at 4.3, suggesting a slower pace of hiring activity than in recent months.

Also weighing on sentiment Monday was Citigroup joining other banks in slashing its full-year growth forecast for China.

The Hong Kong Hang Seng index settled up 0.14%. The Tokyo Stock Exchange was closed for a public holiday.

The benchmark 10-year Treasury was caught a bounce, rising 10/32 to dilute the yield to 1.837%. The greenback was rose 0.17%, according to the dollar index.

October crude oil futures settled down $2.38 to $96.62 a barrel and December gold futures were down $2.10 to settle at $1770.60 an ounce.

In corporate news, activist investment fund Starboard Value LP disclosed Monday it has taken a 13.3% stake in Office Depot ( ODP). The stake makes Starboard the largest shareholder in Office Depot. Shares of Office Depot popped 5.3%.

Early Monday, Apple said pre-orders for the iPhone 5 topped 2 million in the first 24 hours. The stock gained 1.2% in the session, then crested above $700 in Monday's after-hours session.

Shares of General Motors ( GM) lost 1.4% following a report that the Treasury Department is resisting the company's push to sell the government's entire stake in the automaker, The Wall Street Journal reported.


--Written by Andrea Tse and Joe Deaux in New York.

>To contact the writer of this article, click here: Andrea Tse.

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