By William L. Watts, MarketWatch
NEW YORK (MarketWatch) -- U.S. stocks dropped on Monday after a
choppy trading session, with the energy and financial sectors
leading the S&P 500 lower, as Treasury yields hit fresh
two-year highs.
The Dow Jones Industrial Average (DJI) fell 70.73 points, or
0.5%, to end at 15,010.74, with 23 of its 30 components ending in
negative territory.
The S&P 500 (SPX) declined 9.77 points, or 0.6%, to
1,646.06.
This was the fourth consecutive session of declines for both the
Dow industrials and the S&P 500, marking the longest losing
streak since Dec. 28, 2012, when the market fell for five straight
trading days.
More than 640 million shares traded on the New York Stock
Exchange and composite volume topped 2.8 billion. The Nasdaq
Composite (RIXF) fell 13.69 points, or 0.4%, to 3,589.09.
"It feels like interest rates have probably overshot to the
upside," with the yield on the 10-year note likely headed toward
the 3% level, said Randy Frederick, managing director of active
trading and derivatives at the Schwab Center for Financial Research
in Austin, Texas. Read: 3 reasons to be bullish on stocks and 3
reasons to be bearish.
Treasury yields continued to push higher, exploring territory
last seen in July 2011. The yield on the 10-year Treasury note
(10_YEAR) rose seven basis points, or 0.07 percentage point, to
2.89%.
Rising yields can undercut stocks due to fears that higher
borrowing costs will slow economic activity. Yields have been on
the rise since this spring, when Federal Reserve Chairman Ben
Bernanke indicated the Fed could begin scaling back its $85
billion-a-month bond-buying plan later this year.
While stocks recovered from a June pullback fueled by concerns
over the Fed's plans, markets stumbled last week as Treasury yields
continued to rise.
Stocks fell Friday, leaving the Dow with its biggest weekly
percentage drop and point loss of 2013, while the S&P 500 saw
its biggest weekly point loss.
Analysts are debating whether a decision by the Fed to begin
scaling back its bond-buying program should be viewed as a negative
factor for stocks.
"I happen to be in the camp that thinks good news is, in fact,
good news and that investors are overreacting to the prospect of
tapering," said Jerry Webman, chief economist at Oppenheimer Funds,
in a note to clients.
In fact, market expectations that the Fed will begin to cut back
its purchases may have grown so strong that failure to act soon
could be a bigger negative for stocks, because it would raise
questions about the underlying strength of the economy, he
said.
Schwab's Frederick, however, argued that prospects for a
data-inspired Fed tapering combined with a range of other
potentially negative factors, including renewed budget strains and
further fiscal tightening due to the sequester, set the stage for
further stock weakness. He sees scope for a retest of the June
lows. A failure to taper in September, while not likely, would
probably spark a relief rally in equities, he said.
With no major economic data due on Monday, investors are looking
ahead to the release Wednesday of the minutes of the latest meeting
of Fed policy makers, as well as the Kansas City Federal Reserve's
annual retreat in Jackson Hole, Wyo., at the end of the week.
Bernanke, however, won't be attending, likely undercutting its
influence, and leaving investors to obsess all the more over
yields.
Meanwhile, the minutes of the Federal Open Market Committee's
July 30-31 meeting will be released at 2 p.m. Eastern on Wednesday.
The summary will be scanned for information on how many policy
makers were prepared to slow asset purchases, economists said.
It is a light week for economic data, with July existing-home
sales due on Wednesday and new-home-sales figures set for release
on Friday. Weekly jobless claims on Thursday could also sway
markets after a larger-than-expected drop in first-time
applications for benefits reported last week.
Intel gains
Shares of Intel Corp. (INTC) rose 1.7%, making it the biggest
gainer on the Dow. The rise came after Piper Jaffray analyst
Auguste Gus Richard raised the stock's rating to neutral from
underweight, citing potential gains from the corporate market and
the coming release of Windows 8.1.
Facebook Inc. (FB) shares rose 2% to $37.81 after Evercore
Partners analyst Ken Sena raised his price target to $45 from
$34.
Shares of Apple Inc. (AAPL) maintained upside momentum after the
company posted its strongest weekly performance since October 2011
last week after Carl Icahn trumpeted the company's merits on
Twitter. Apple shares rose 1.1% on Monday.
Dollar General Corp. (DG) rose 3.1%, turning in the strongest
performance in the S&P 500. J.P. Morgan analysts raised the
stock to overweight from neutral, citing a "sustainable
mid-teens-plus [earnings per share] compounding-growth story
unfolding." See: Monday's Movers.
J.P. Morgan Chase & Co. (JPM) fell 2.7%, making it the
largest loser in the Dow. News reports said U.S. regulators are
looking into the bank's hiring practices in China.
Cliffs Natural Resources Inc. (CLF) dropped nearly 5%, making it
the biggest loser in the S&P 500. The decline comes after a
nearly 4% drop on Friday.
In other markets, Asian stocks closed mostly lower, while
European stocks traded with modest but broad-based losses.
Gold futures dropped $5.30, or 0.4%, to settle at $1,365.70 an
ounce on the Comex division of the New York Mercantile
Exchange.
Oil prices ended slightly lower, while the dollar traded mixed
against other major currencies. The Indian rupee, meanwhile, made
headlines as it sank to an all-time low versus the dollar as
efforts by the Indian government to stem panic selling failed to do
the trick.
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