Stocks lose momentum
Stocks retreated Monday, losing momentum from last week’s gains after news that existing-home sales slipped in July for a fifth straight month stirred concerns about the strength of the economy.
Sales of existing homes slowed 0.2% to their lowest level in nearly five years, while home prices fell for a record 12th straight month, the National Assn. of Realtors reported.
A fresh round of buyout news might have limited the stock market’s losses Monday, which were small compared with the triple-digit plunges the Dow Jones industrials suffered in early August.
“I think there is still a little bit of nervousness about the credit market but that seems to be abating slowly,” said Brian Gendreau, investment strategist at ING Investment Management.
“We had a very strong week last week and I wouldn’t attribute this down market to any return to panic,” he said. “I think it’s just a normal down day.”
The Dow Jones industrial average fell 56.74 points, or 0.4%, to 13,322.13. The Standard & Poor’s 500 index fell 12.58 points, or 0.9%, to 1,466.79, and the Nasdaq composite index dropped 15.44 points, or 0.6%, to 2,561.25.
The Russell 2,000 index of smaller companies fell 9.48, or 1.2%, to 789.45.
Declining issues outnumbered advancers by more than 2 to 1 on the New York Stock Exchange. Volume was light.
Last week was a strong one for the markets after weeks of volatility. The Dow and the S&P; 500 finished up 2.3% for the week, and the Nasdaq jumped 2.9%.
Yields on short-term Treasury securities rose Monday as investors continued to unwind their recent flight into the safety of the instruments. The government sold $24 billion in three-month bills to yield 4.6%, compared with 2.85% last week.
Among long-term Treasuries, however, the yield on the benchmark 10-year Treasury note fell to 4.57% from 4.62% late Friday.
The dollar was mixed against other major currencies, while gold prices fell.
Investors last week gained a sense that the sub-prime and credit market problems weren’t necessarily going to sink the economy, ING’s Gendreau said.
That realization, however, makes the likelihood of an interest rate cut at the Federal Reserve’s Sept. 18 meeting less certain than it might have appeared two weeks ago, he said. Gendreau said the Fed had “gone out of its way” to add liquidity. The central bank did so again Monday with a $9.5-billion short-term injection into the banking system.
“The big question is whether the market will accept that as an adequate Fed response,” he said. “What if the market doesn’t get a rate cut? I think that won’t be the end of the world.”
Investors faced such questions Monday amid signs that an appetite for corporate deal making survives. U.S. Steel said it would buy Canada’s Stelco for about $1.1 billion; Swiss electrical engineer ABB said it would sell its oil and gas production plant to Chicago Bridge & Iron for $950 million, and Taiwanese computer vendor Acer said it would buy Irvine-based computer maker Gateway for $710 million. Gateway surged 61 cents, or 50%, to $1.82 on the news.
But it’s possible the huge buyout sums seen earlier in the year, which drove the Dow to record highs last month, might slip as debt becomes more difficult to take on.
Home Depot tentatively agreed to sell its wholesale distribution unit to private equity firms for $8.5 billion, $1.8 billion less than originally agreed on, said a person familiar with the deal. The firm had been expected to announce the repricing Monday, but made no statement.
Home Depot shares rose 57 cents, or 1.6%, to $35.25. Shares of the investment banks financing the transaction declined. JP Morgan Chase fell $1.04 to $44.91, Merrill Lynch dropped $1.28, or 1.7%, to $74.89 and Lehman Bros. was down $2.62 to $57.75.
In the energy market, oil futures rose 88 cents to $71.97 a barrel in New York. Natural gas futures slid 2.6% and are down 23% in the last six trading sessions.
The drop in natural gas prices pulled down the stocks of power producers. The Dow Jones utility stock index sank 3.2%. Dynegy fell 45 cents, or 5.3%, to $8.05. Rosemead-based Edison International slumped $2.18, or 4%, to $52.62, and PG&E; slid $1.20, or 2.7%, to $43.85.
In other market highlights:
Countrywide Financial fell $1, or 4.8%, to $20 after Lehman slashed its 2007 and 2008 earnings estimates for the mortgage giant, saying “we still believe tough times lie ahead” for the company. Bank of America, which last week bought $2 billion in Countrywide preferred stock, fell $1, or 1.9%, to $50.87.
Shares of home builders fell on the July housing data. KB Home slid $1.79 to $30.19, Ryland Group sank $2.05 to $29.83 and Centex fell $1.71 to $30.28.
Overseas, key stock indexes rose 0.3% in Japan and 0.4% in France and fell 0.3% in Germany. The Shanghai composite index rose 0.8% to its sixth consecutive record close.
