Stock rally gives way to sharp losses
Stocks fell sharply Monday, with a weakening U.S. dollar and tepid sales at retail giant Wal-Mart Stores giving investors the opening they were looking for to cash out some of the profits they’ve booked during the market’s four-month surge.
The Dow Jones industrial average and the Standard & Poor’s 500 index each sank more than 1% for the first time since July 13. The losses were spread across many sectors, including technology and financial services, that had been strong performers in recent months. Overseas markets also retreated.
Investment pros said the decline was not surprising given Wall Street’s strength this year, especially through its seasonally weak period in September and October. They attributed the sell-off largely to profit taking by big institutional investors that are sitting on sizable recent gains.
“This is more of an excuse to sell rather than a real reason to sell,” said Marc Pado, U.S. market strategist at Cantor Fitzgerald. “This isn’t the start of something big.”
The Dow sank 158.46 points, or 1.3%, to 12,121.71, its biggest decline since a 1.5% slide on July 13.
The S&P; 500 was off 19.05 points, or 1.4%, to 1,381.90. The tech-heavy Nasdaq composite index skidded 2.2%, tumbling 54.34 points to 2,405.92.
Smaller stocks, which have rallied sharply in the last month, fell more than blue chips. The Russell 2,000 small-stock index was down 20.18 points, or 2.6%, to 772.10. It was the biggest loss since the index dropped 2.7% on July 20.
The declines seemed muted compared with the extended rally of recent months. Even after its decline Monday, for example, the Nasdaq is up 19% since July 21 and 9.1% for the year.
The Dow is up 13.1% since Jan. 1, and the S&P; 500 has gained 10.7%.
Stocks historically sag after Labor Day before recovering at Thanksgiving and rallying into Christmas.
But the post-Labor Day slump didn’t happen this year. Stocks moved higher after the Federal Reserve paused in its string of interest rate hikes as hopes grew that it could slow economic growth without triggering a recession.
Market pros said institutional investors knew a downdraft would eventually come and were prepared to sell at the first whiff of bad news.
That opportunity came Friday, when the dollar fell to a 20-month low against the euro amid concerns about a weakening U.S. economy. Stocks declined in light trading Friday but absorbed a bigger hit Monday, when most traders returned from the holiday weekend.
Stocks “can actually go down as well as up,” joked Phil Roth, a technical analyst at New York brokerage Miller Tabak & Co. “I’ll be darned.”
The dollar continued to lose ground Monday, with the euro trading at $1.313, from $1.309 on Friday.
As stocks declined, some investors looked to the U.S. Treasury bond market as a safe haven. The yield on the 10-year Treasury note fell to a nine-month low of 4.53% from 4.55% on Friday. Yields decline as bond prices rise.
Also adding to Wall Street’s unease was news from Wal-Mart, which estimated Saturday that sales at stores open at least one year fell 0.1% this month, its first such drop in a decade. On Monday, shares of Wal-Mart fell $1.29, or 2.7%, to $46.61.
Wal-Mart’s sales slump overshadowed more upbeat reports from the long Thanksgiving weekend, the first big weekend for holiday sales. The National Retail Federation said Sunday that spending this past weekend was up 18.9% over last year, boosted in part by sales of big-ticket items such as high-definition televisions.
But Wal-Mart is considered a retailing bellwether, and other merchants also posted declines Monday.
Federated Department Stores, which owns big chain stores including Macy’s and Bloomingdale’s, subtracted $1.27 to $41.84. Electronics retailer Best Buy dropped 71 cents to $54.37. Discounter Target declined 64 cents to $57.07, while Big Lots fell 76 cents to $22.42.
In other market highlights:
* Technology and financial issues, which have been among the market leaders this year, took some of the hardest falls Monday. Among tech firms, Google lost $20.25 to $484.75 and Cisco Systems fell $1.04 to $25.80.
Among banking concerns, Wall Street powerhouse Goldman Sachs slid $8.49, to $193.11, while rival Merrill Lynch sank $3.38 to $89.21.
* Airline stocks descended as crude oil prices rose to $60.32 a barrel from $59.24 on Friday. UAL, the parent of United Airlines, sank $2.81 to $41.63. AMR, which owns American Airlines, declined $1.90 to $32.20. Among the discounters, JetBlue Airways dropped 92 cents to $13.79 and Southwest fell 44 cents to $15.81.
* An A.G. Edwards & Sons analyst lowered his recommendation from “buy” to “hold” on several major hotel chains, sending their shares lower. Hilton Hotels dropped $1.70 to $32.10, Marriott International gave up $1.54 to $44.91 and Starwood Hotels & Resorts Worldwide subtracted $1.92 to $63.46.
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Broad pullback
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Major U.S. and foreign stock indexes fell sharply Monday, shaving year-to-date gains.
*--* Pctg. change: Index Mon. YTD Russell 2,000 --2.6% +14.7% Nasdaq composite --2.2 +9.1 Bovespa(Brazil) --2.0 +22.3 DAX (Germany) --1.8 +16.4 CAC (France) --1.5 +12.6 IPC (Mexico) --1.4 +37.3 S&P; 500 --1.4 +10.7 Dow industrials --1.3 +13.1 FT-100 (Britain) --1.2 +7.7 S&P-TSX;(Canada) --0.7 +11.3
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*Note: Changes measured in local currencies.
Source: Bloomberg News
