By William L. Watts, MarketWatch
NEW YORK (MarketWatch) -- U.S. stocks started the week on a down
note, posting a modest decline Monday as home sales fell in the
wake of higher mortgage rates and investors nervously awaited more
data later in the week and a meeting of Federal Reserve policy
makers.
Losses were limited, however, as a round of weekend deal making
fanned hopes for a pickup in merger-and-acquisition activity in the
second half of the year, while moving shares of retailer Saks Inc.,
drug maker Perrigo Co. and advertising firm Omnicom Group Inc.
The S&P 500 Index (SPX) fell 6.32 points, or 0.4%, to settle
at 1,685.33, while the Dow Jones Industrial Average (DJI) dropped
36.86 points, or 0.2%, to end at 15,521.97. The Nasdaq Composite
(RIXF) declined 14.02 points, or 0.4%, to 3,599.14.
Indexes saw early pressure after the National Association of
Realtors said pending home sales fell 0.4% in June, with rising
rates blamed for undercutting sales momentum.
Still, the Dow and S&P remain camped out just below record
highs, while the Nasdaq is near a 13-year high. Overall, market
action remains "very healthy and very constructive," though the
market's reaction to upcoming data will be very telling, said Adam
Sarhan, chief executive of Sarhan Capital, in a phone
interview.
The Federal Reserve meeting, which concludes Wednesday, is the
"wild card" for markets given widely held expectations the
policy-setting Federal Open Market Committee won't make major
changes to its policy statement, Sarhan said.
Investors are closely watching the Fed for any further clues as
to when it may begin tapering its purchases of government bonds.
Concerns over a slower pace of stimulus was tied to a pullback by
stocks last month, though equities soon recovered to see the
S&P and Dow head back to record territory.
Meanwhile, it's a very busy week for economic data. Investors
will get their first look at second-quarter gross domestic product
on Wednesday. Economists surveyed by MarketWatch forecast the data
to show the economy grew at an annualized rate of just 1% after a
mediocre 1.8% expansion in the first three months of the year.
On Friday, nonfarm payrolls and other labor data are set for
release. Economists surveyed by MarketWatch expect payrolls to grow
by 175,000 in July after an expansion of 195,000 in June. See: Half
full or half empty? Jobs and GDP differ.
Interest rates have also been in the spotlight, as investors
weigh whether stocks can continue to advance in light of rising
bond yields as market participants consider a potential slowing of
Fed stimulus efforts.
MacNeil Curry, head of global technical strategy at Bank of
America Merrill Lynch, said that while U.S. Treasurys, particularly
the 10-year yield (10_YEAR), have been a driver of global financial
markets, the focus is beginning to shift to Japan's Nikkei stock
average, which is "on the edge of a significant breakdown and
resumption of its larger bear trend." See: Why rising rates aren't
killing the stock rally.
Japanese stocks ended at their lowest level in more than a month
on Monday, with the Nikkei Stock Average falling 3.3% to
13,661.13.
Curry is targeting a downside correction for the S&P toward
1,671.
Shares of Dow component Boeing Co. (BA) fell 0.8%. The U.S.
Federal Aviation Administration has proposed a $2.75 million civil
penalty against the aerospace company, saying it failed to correct
a problem with fasteners on its 777 airplanes for more than two
years after its discovery in 2008.
Caterpillar Inc. (CAT) was the Dow's top gainer, rising 1.2%
after the company said it would buy back $1 billion in shares from
Societe Generale.
It wasn't a full-fledged "merger Monday," but deal activity over
the weekend pushed around some stocks. Analysts said the activity
could be a sign that more deal-making is in the pipeline. See
Merger Monday: A signal for more M&A in 2013?
Shares of Saks Inc. (SKS) rose more than 4% after the retailer
agreed to be acquired by Hudson's Bay Co. in a $2.4 billion,
all-cash deal. Read: Saks adds a luxury halo to Canada's Hudson's
Bay.
American depositary shares of Dublin-based Elan Corp.(ELN) rose
3.6% after Perrigo (PRGO) said it would use a combination of cash
and stock to buy Elan for $16.50 a share, which is a 10.5% premium
over Elan's closing price Friday. Perrigo shares dropped 6.8%.
More than half of the companies that make up the S&P 500
have reported earnings so far. And it's shaping up to be the second
least-surprising earnings season in four years, according to
FactSet. (Read more in The Tell blog
http://blogs.marketwatch.com/thetell/2013/07/26/earnings-surprises-running-at-second-narrowest-rate-in-4-years-factset/?mod=MW_latest_news.).
Companies that have managed to beat the Wall Street consensus on
earnings so far have done so by only 3.2% -- well below the 4.3%
average seen over the past year, and 7% over the past four
years.
Shares of Hertz Global Holdings Inc. (HTZ) dropped 2.5%. The
car-rental firm reported a 31% rise in second-quarter profit,
earning 45 cents a share when excluding one-time items. A survey of
analysts found a consensus forecast for earnings of 45 cents. See:
Anadarko, Express Scripts in focus Monday.
Shares of Omnicom Group Inc. (OMC) erased an early rise, setting
0.6% lower after it and Publicis Groupe SA said Sunday that they
will merge in the biggest advertising industry deal in history.
Simon Property Group Inc. (SPG) said Monday that second-quarter
earnings rose 58%. The nation's largest shopping-mall operator
logged higher funds from operations to beat analyst estimates and
boosted its full-year outlook. Shares were unable to escape the
broader downdraft, slipping 0.9%.
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