Stocks Drop on Economic News

Investors seemed to heed the old adage "sell in May and then walk away" after April's strong run. Personal income rose, while the PCE price readings were relatively tame

Stocks finished April on a down note as investors took profits after substantial gains for the month and adjusted their portfolios for May and beyond. Some reports that showed slow economic growth and easier inflation pressures have bolstered hopes the Fed will lower rates in the future, but not everyone's convinced of that, says S&P.

The Dow Jones industrial average fell 58.03 points, or 0.44%, to 13,062.91. The broader S&P 500 index was down 11.7 points, or 0.78%, to 1,482.37. The tech-heavy Nasdaq Composite index lost 32.32 points, or 1.26%, to 2,525.09.

Seasonal factors might explain the retreat Monday afternoon. "What with the market up more than 13% in 2006, it's no wonder investors are now considering the old Wall Street adage 'sell in May and then walk away,' particularly in light of eroding fundamentals," says Sam Stovall, chief investment strategist at Standard & Poor's. He notes that since 1945, the S&P 500 posted an average price gain of 7.1% during the November through April period, vs. a rise of only 1.6% from May through October, implying that greater profits could be made elsewhere.

In economic news Monday, personal income rose more than expected and core PCE price readings were tame. Personal income rose 0.7%, personal consumption expenditures rose 0.3% and the PCE index rose at a 2.1% annual rate, just above the Fed's comfort zone.

U.S. construction spending rose 0.2% in March, after a huge upward revision to 1.5% increase in February (0.3% previously), says Action Economics. Residential construction remained weak, while nonresidential construction spending continued to rise. This is a solid report, though it's not usually a big market mover, says Action Economics.

And the Chicago PMI manufacturing index fell to 52.9 in April from 61.7 in March -- a bit lower than exected.

The focus this week is on Friday's April nonfarm payrolls report.

Coming up Tuesday is the ISM manufacturing survey for April, which is expected at 51.0 from March's reading of 50.9. April unit vehicle sales is expected at 16.2 million, little change on the month, says Action Economics.

In earnings news Monday, Verizon Communications (VZ) posted first-quarter earnings per share excluding items of 56 cents, above the consensus forecast, on a 6.4% revenue rise.

RadioShack (RSH) moved up after the electronics retailer reported a jump in first-quarter EPS despite a 9.2% same-store sales drop and 14% total sales drop, thanks to steady improvement in its operating economics. Keybanc upgraded the stock to hold from underweight.

On the deal front, International Securities Exchange Holdings (ISE) shot up 46% on news that it agreed to be acquired by Eurex for about $2.8 billion, or $67.50 per share, in cash. Eurex is jointly owned by Deutsche Boerse and Swiss Stock Exchange SWX.

Yahoo! (YHOO) says it will acquire the remaining equity interest in Right Media for $680 million in equal parts cash and Yahoo stock. This follows Yahoo's 20% investment in Right Media in October, 2006.

In the energy markets, June NYMEX crude oil was down 68 cents to $65.78 a barrel, on profit taking after Friday's $1.50 spike related to the arrest of 172 people in Saudi Arabia, suspected of planning attacks on oil and military installations.

European stock markets moved up Monday. In London, the FTSE-100 index rose 0.48% to 6,449.2. Germany's DAX index was up 0.42% to 7,408.87. In Paris, the CAC 40 index added 0.49% to 5,960.04.

Asian markets were mixed after China tightened lending rates. In Japan, the markets were closed for a holiday. In Hong Kong, the Hang Seng index lost 1.01% to 20,318.98. In China, the Shanghai Composite Index rose 2.17% to 3,841.27, while the CSI 300 index climbed 2.54% to a new high of 3,558.71.

Treasury Market

Treasury prices rose, as core inflation measures in the PCE report were flat and up just 2.1% year-over-year, nearer to the Fed's target range of 1-2% than the elevated 2.2% reading in Friday's GDP report, says Action Economics. Weaker Chicago PMI and construction spending reports helped calm the bears as well, says Action Economics. The 10-year yield fell to 4.63%.