By Dan Strumpf And Saumya Vaishampayan
U.S. stocks opened lower, giving back ground after major indexes
posted their biggest weekly gains in more than a year.
The Dow Jones Industrial Average slipped 71 points, or 0.4%, to
16734. The S&P 500 index declined 12 points, or 0.6%, to 1953.
The Nasdaq Composite Index fell 26 points, or 0.6%, to 4457.
The decline comes on the heels of a volatile few weeks for
stocks. Last week, strong earnings reports from companies like
Microsoft helped boost the S&P 500 4.1% for the week, marking
its largest weekly percentage gain since January 2013. The Nasdaq
Composite increased 5.3%, the biggest weekly percentage gain since
December 2011.
Energy shares were the biggest decliners as crude-oil prices
tumbled. The S&P 500 energy index fell 2.9%. Shares of Chevron
Corp. tumbled 1.9%. Exxon Mobil fell 1.7%.
While global growth concerns have sent stocks gyrating in recent
weeks, investors have recently shifted their attention to the
third-quarter corporate earnings season and signs of U.S. economic
improvement. As of Friday, when 208 companies of the S&P 500
had reported results, the index was on track for 5.6% earnings
growth from a year earlier, according to FactSet.
That is higher than the 4.5% earnings growth expected before the
reporting season began. Continued earnings growth and positive
economic data should lift stocks, said Jonathan Golub, chief U.S.
market strategist at RBC Capital Markets.
Domestically oriented companies in the S&P 500 are doing
better than those that are internationally focused, he said. "It
highlights the fact that the U.S. economy is in pretty good shape,"
he said.
Meanwhile, European markets skidded despite news that the
European Central Bank's stress tests showed that all but 13 of the
region's leading banks have enough capital to survive another
period of economic turbulence. The stress tests are part of an
effort to reassure investors that European lenders are back on
track.
Italian banks were a weak spot. Four Italian banks were told
they need to raise more capital, weighing on that country's stocks.
The Stoxx Europe 600 fell 0.9%.
The decline comes amid persistent skepticism among investors
about the health of Europe's banks and the ability of the ECB to
cope with a broader economic slowdown, said Michael O'Rourke, chief
market strategist at JonesTrading.
"You could say every bank in Europe is healthy and I'm pretty
sure 99 out of 100 investors would doubt that," he said.
Meanwhile, Brazil's elections concluded Sunday, with President
Dilma Rousseff winning a second term by a narrow margin. Brazil's
Bovespa fell 4.9% Monday.
In commodity markets, crude-oil futures fell sharply, and were
recently down 1.5% at $79.75 a barrel. Gold futures inched down
0.1% to $1230.80 an ounce.
And in the U.S., pending sales of existing homes increased 0.3%
to a seasonally adjusted index level of 105 in September from
August, the National Association of Realtors said Monday. An index
level of 100 is considered an average level of contract activity.
The increase was smaller than expected.
A gauge of Texas-area manufacturers is scheduled for release at
10:30 a.m. EDT.
Later in the week, the Federal Reserve is due to hold a two-day
policy meeting starting Tuesday. On Thursday, investors will get an
update on third-quarter U.S. economic growth, expected to show
growth of 3.1%.
"This is a pivotal week overall," Mr. O'Rourke said. "The amount
of news we have coming out should fuel volatility in both
directions."
The yield on the 10-year Treasury note fell to 2.257%. Yields
fall as prices rise.
In earnings news, Merck Co. reported earnings that beat
analysts' expectations, but revenue fell short. The pharmaceutical
giant tightened its earnings outlook for the year by three cents on
each end, now expecting $3.46 to $3.50 a share. It also cut the top
end of its revenue forecast and now expects $42.4 billion to $42.8
billion for the year. Shares fell 0.9%.
Valeant Pharmaceuticals International Inc. said it is prepared
to raise its offer for Allergan Inc. to at least $200 a share.
Allergan also reported third-quarter earnings that beat
expectations and raised its guidance for the year. Shares of
Allergan eased 0.2%.
Write to Dan Strumpf at daniel.strumpf@wsj.com and Saumya
Vaishampayan at saumya.vaishampayan@wsj.com