By Donna Kardos Yesalavich
U.S. stocks slipped Thursday, weighed by financials as investors
braced for legislators to wrap up negotiations on the financial
overhaul bill expected to be finalized Thursday.
U.S. House and Senate lawmakers said they expect to reach
agreement Thursday on the final pieces of legislation expected to
tighten oversight of the financial industry more than many
expected.
Investors said even a month ago they expected the more
contentious provisions still being debated, including derivatives
regulation and the so-called "Volcker Rule," which would limit
banks' ability to trade their own capital alongside client funds,
would be significantly watered down or stripped out of the
bill.
"As we get closer to the end game and get a better view of what
the legislation will look like, it's shaping up to be tougher than
many in the industry would've thought," said Jeffrey Kleintop,
chief market strategist at LPL Financial.
The Dow Jones Industrial Average (DJI) was down 93 points, or
0.9%, to 10205, in recent trading. Financial components were among
the worst performers.
J.P. Morgan Chase (JPM) dropped 3.7%, while Bank of America
(BAC) slid 2.2%.
The major banks' slide steepened after U.S. lawmakers agreed on
new capital requirements in which larger banks will have five years
to stop treating trust-preferred securities as Tier 1 capital, a
key measure of a bank's strength.
Pfizer (PFE) was also weak. The drug company dropped 1.7% after
saying it would suspend osteoarthritis trials of its pain drug
tanezumab after a "small number" of reports that patients' ailments
worsened to the point of needing joint replacement. The company
said the suspension followed a request by the Food and Drug
Administration.
Just two of the Dow's 30 components eked out gains: Johnson
& Johnson (JNJ) rose 0.3% and Coca-Cola (KO) edged up 0.1%.
The Nasdaq Composite (RIXF) declined 0.9% to 2235. The Standard
& Poor's 500 (SPX) slipped 0.9% to 1082, with its financial and
consumer-discretionary sectors leading the drop.
Weighing on the consumer discretionary sector, Darden
Restaurants (DRI), owner of Olive Garden and the Red Lobster
chains, fell 3.6% after its fiscal fourth-quarter earnings fell 6%
as sales slipped. However, the restaurant company projected higher
profits in the coming fiscal year on positive same-store sales for
the first time in two years.
The market's broad drop Thursday came despite a
bigger-than-expected drop in weekly jobless claims. Initial claims
for jobless benefits fell by 19,000 to 457,000 in the week ended
June 19, while some economists had expected claims would fall by
only 7,000.
Separately, the Commerce Department said durable-goods orders
decreased by 1.1% to a seasonally adjusted $192.01 billion, but
that was smaller than the 1.5% decline some economists predicted.
The number was weighed down by a 30% plunge in non-defense aircraft
and parts that followed a 216% surge in April.
Outside of the transportation sector, orders for all other
durables rose by 0.9% in May, with gains in metals, machinery and
computers.
However, investors continued to worry about the economy a day
after the Federal Reserve's policy-making body kept its key
interest rate near zero, as expected, but cast its policy statement
with more downbeat language. "Financial conditions have become less
supportive of economic growth on balance, largely reflecting
developments abroad," namely in Europe, the central bank said in
its Wednesday statement.
The euro fell to $1.2306, slightly down from $1.2310 late
Wednesday in New York. The U.S. Dollar Index (DXY), reflecting the
U.S. currency against a basket of six others, rose 0.1%.
Treasurys also rose, pushing the yield on the 10-year note down
to 3.08%, as investors moved toward safer assets. Crude-oil futures
fell below $76 a barrel while gold futures advanced.
Among stocks in focus, Lennar (LEN) dropped 0.7%. The home
builder swung to a fiscal second-quarter profit, easily beating
analysts' estimates, helped by higher revenue. However, orders and
deliveries fell.
Trading in Hasbro (HAS) shares rose 2.9% after a brief halt.
Private-equity firm Providence Equity Partners approached the
toymaker to take the company private in a leveraged buyout, people
familiar with the matter said. Hasbro said its board has no
interest in pursuing a transaction. Hasbro has a market
capitalization of about $6 billion, and a leveraged buyout of the
S&P 500 company, which owns the G.I. Joe, Transformers and Nerf
brands, would be the year's largest private-equity deal.