Stocks Decline on Concern Over Consumer Spending
Investors sold stocks moderately lower Monday, ending a five-day rally as rising oil prices and disappointing results from Lowe’s raised concerns about a slowdown in consumer spending.
The pullback came after last week’s gains pushed major indexes to three-month highs. With little in the way of corporate earnings reports this week and only two major economic reports due out, investors were hard-pressed to extend the rally.
“In general, people are still pretty spooked by the global situation and the Middle East and are wondering what kind of legs the market has in the short term,” said Phil Dow, director of equity strategy for RBC Dain Rauscher. “There’s not much in the way of expectations for the week, but we could be moving toward a platform for a decent rally.”
The Dow Jones industrial average dropped 36.42 points, or 0.3%, to 11,345.05. The Standard & Poor’s 500 index lost 4.78 points, or 0.4%, to 1,297.52, and the Nasdaq composite index fell 16.20 points, or 0.8%, to 2,147.75.
Bond yields fell to four-month lows. The 10-year U.S. Treasury note, a benchmark for mortgage rates, sank to 4.81% from 4.84% on Friday and is down from 5.24% on June 28.
Last week bond yields had fallen sharply as slower-than-expected inflation and weak consumer confidence data bolstered expectations that the Federal Reserve would hold interest rates steady at its next meeting in September.
Wall Street focused on oil in the absence of other news. Concern about Iran’s nuclear ambitions sent crude prices up $1.38 to $72.52 a barrel in New York trading.
One portfolio manager contended that the effect of higher crude prices on stocks might just be a speed bump.
“The market and the economy have proved that even if oil moves to $80 a barrel, it won’t be a major event,” said Stephen Leeb of Leeb Capital Management.
“On a near-term basis, this won’t be a big deal, but longer term -- if we hit that triple-digit figure -- it will then start to have more of an effect,” he said.
In other market highlights:
* Lowe’s, the nation’s second-largest home improvement chain, after Home Depot, reported that second-quarter profit rose 11%. The company, however, cut its full-year earnings outlook on worries that higher energy prices and a sluggish housing market would curb consumers’ willingness to spend.
Lowe’s tumbled $1.17 to $28.35 and Home Depot dropped 47 cents to $34.30.
* Dollar General gave up $1.35, or 10%, to $12.74 for the biggest decline in the S&P; 500. The discount retailer said that according to preliminary results, profit in its fiscal second quarter ended Aug. 4 was at least 14 cents a share as back-to-school sales fell below expectations. That missed the company’s forecast of at least 18 cents.
* Airline shares declined amid turbulence in the oil markets. AMR, the parent of American Airlines, slipped 45 cents to $20.49. UAL, which runs United Airlines, dropped 87 cents to $24.01.
* Concern that higher oil prices could slow economic growth cut into home builders’ shares. DR Horton slumped 49 cents to $21.46, and Toll Bros. sank $1.02 to $24.77.
