U.S. Stocks Turn Lower As Financials, Energy Shares Struggle
NEW YORK (MarketWatch) -- U.S. stocks turned lower in midday trade Monday, with weakness in financial and energy shares weighing on the broad market, offsetting earlier gains from a big drop in oil prices.
"The advent of earnings season this week has investors on the defensive, especially as the beleaguered financial sector leads off," analysts at Action Economics said in a note. "Big declines in commodities today have also weighed on commodity based shares."
After trading higher through most of the morning, energy shares followed crude oil prices and fell sharply. And selling in financial shares accelerated ahead of the kick-off of earnings reporting season, with the shares of mortgage giants such as Fannie Mae and Freddie Mac sliding nearly 20%.
The Dow Jones Industrial Average dipped 108 points, or 1%, to 11,179, with 18 of its 30 components trading lower, led by big drops in its financial components such as Citigroup Inc. and energy stocks, such as ExxonMobil Corp. .
Also weighing on the Dow, shares of drug manufacturer Merck & Co. Inc. fell nearly 5% after the stock was downgraded to neutral from buy at UBS.
Shares of Walt Disney Co. , another blue-chip company, fell 3% after Lehman Brothers downgraded the entertainment firm's stock. And General Motors Corp. fell 1%, reversing earlier gains scored on the back of a Wall Street Journal report that GM is considering more job cuts and closing more brands.
The Dow remained supported by Alcoa Inc. , lately up 1%, ahead of the aluminum producer's earnings report after the close Tuesday.
The S&P 500 index fell 16 points, or 1.3%, to 1,246, while the Nasdaq Composite dropped 20 points, or 0.9%, to 2,225.
Treasurys reversed earlier losses, with the yield on the 10-year note dropping to 3.874%, as investors sought the safe-haven of government bonds. .
Big reversal
Stocks had opened on sharp gains as crude oil prices fell sharply, helped by a stronger dollar , and an easing of tensions between Iran and the West.
Crude oil remained under heavy selling, with the August contract recently down $4.10 to $141.19 a barrel. . Gold prices also fell, with futures for August delivery falling $6.80 to $926.80 an ounce. .
"One of the reasons for the stronger dollar is there is hope that the G8 will make a stronger case for stronger dollar, due to the fact that the global economy beginning to show signs of real stress due to higher oil prices," said Peter Cardillo, market economist at Avalon Partners, of the meeting of Group of Eight world leaders currently being held in Japan.
The S&P 500 gained 3.24 points to 1,266.14, with information technology leading gains among the S&P's 10 industry groups, the sector recently up 1.3%, with only the financial and energy sectors falling, the former recently down 1.8%, the latter off 0.7%.
"This week's earnings results mark the official start of the earnings season, but outside of General Electric, investors are mainly focusing on the banks and the credit crisis," said Marc Pado, U.S. market strategist at Cantor Fitzgerald.
The technology-laden Nasdaq Composite added 12.35 points to stand at 2,257.73, bolstered in part by Microsoft Corp. , which said it is open to discussing a "major transaction" with a new board of directors at Yahoo Inc. .
Shares of Microsoft gained 0.1% while Yahoo soared 10.6%.
At midday, volume on the New York Stock Exchange came to 474 million shares, with declining issues running ahead of those advancing 8 to 7. On the Nasdaq, nearly 338 million shares traded, and decliners topped advancers 5 to 4.
U.S. stocks ended lower during the holiday-shortened week, with the Dow Jones Industrial Average falling into bear-market territory.
Monday's economic calendar was light, with a speech from non-voting San Francisco Fed President Janet Yellen the highlight.
Active issues
The ournal also reported Merrill Lynch & Co. is inching closer to selling ownership stakes in investment manager BlackRock Inc. and information provider Bloomberg LP.
Shares of Merrill fell 1.4% and BlackRock issues declined 2.4%.
"The still-distressed state of balance sheets at banks and other financial intermediaries suggests the credit creation mechanism is likely to remain impaired for the near future, dulling the impact of Fed rate cuts on the economy," said Lehman Brothers analyst Zach Pandl.
And, General Electric Co.'s NBC Universal led a group buying the Weather Channel in what is expected to be a multi-billion-dollar deal. Terms weren't disclosed.
Germany's Fresenius said it's going to buy APP Pharmaceuticals Inc. for up to $4.6 billion.
InBev announced a rival slate of directors for Anheuser-Busch Companies Inc. that includes Adolphus Busch IV, the uncle of the Budweiser maker's chief executive, August Busch IV.
Milwaukee bank Marshall & Ilsley Corp. warned of a provision of at least $900 million in the second quarter to cover loan losses from the slumping housing market.
Teva Pharmaceutical Industries Ltd. shares were as much as 6.8% lower in Tel Aviv after the company said that in a Phase III study, a 40-milligram dose of its Copaxone multiple-sclerosis treatment was no more effective in reducing the relapse rate than the approved 20mg dose.
Overseas, the Nikkei 225 ended a 12-session losing run with a 0.9% rise. In London, the pan-European Dow Jones Stoxx 600 index jumped 1% to 282.43. .
By Kate Gibson