Market Snapshot August 17, 2009, 4:30PM EST

Stocks Stumble on Growth Worries

Traders Monday brushed aside better than expected readings on the Empire State and NAHB indexes

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U.S. stocks closed sharply lower Monday. Major equity indexes registered losses of 2% or more following weaker-than-expected reports on Japanese gross domestic product (GDP) and second-quarter earnings at Lowe's Companies (LOW), which came on the heels of last week's disappointing U.S. consumer sentiment and retail sales data.

Basic materials, financials, industrials, and consumer services were among the market sectors feeling the heat in Monday's session.

A sharply higher reading on the New York Fed's index of manufacturing activity for August -- and a better than expected reading on homebuilder sentiment -- did not appear to have much impact on equity indexes. The U.S. Treasury reported increased foreign demand for U.S. assets.

On Monday, the 30-stock Dow Jones industrial average was lower by 186.06 points, or 2.00%, at 9,135.34. The broad Standard & Poor's 500-stock index fell 24.36 points, or 2.43%, to 979.73. The tech-heavy Nasdaq composite index shed 54.68 points, or 2.75%, to 1,930.84.

Treasuries and global sovereign debt markets were higher Monday as money flowed back into the safety of government bonds. The dollar climbed higher, benefiting from the renewed demand for safety.

Gold and crude oil futures fell.

"Despite today's better than expected Empire State results, fears of a tepid consumer sector are discouraging hopes for a decent and sustained rebound in growth beginning this quarter," wrote Action Economics analysts Monday.

Market watchers cited by Standard & Poor's MarketScope said investors speculated that gains in riskier assets have outpaced prospects for economic growth.

Standard & Poor's chief technical strategist Mark Arbeter sees major averages bumping against major levels of technical resistance. "The major indices have run into stiff overhead resistance and we think the likelihood of a pullback is rising," Arbeter said in a note published late in Friday's session.

Among Monday's stocks in the news, Lowe's posted $0.51 vs. $0.63 second-quarter EPS on 9.5% lower same-store sales and 4.6% lower total sales. Lowe's sees $0.21-$0.25 third-quarter EPS, with same-store sales down 2%-5% and EPS of $1.13-$1.21 for fiscal 2010, with same-store sales down 7%-9% and total sales down approximately 3%. In response to the challenging economic environment, Lowe's said expansion in North America for 2010 will be below previously anticipated levels, new store openings will likely be in range of 35-45. Given this, has the company decided to no longer pursue several projects.

New York State's attorney general, Andrew Cuomo, is expected to file a lawsuit as soon as Monday against Charles Schwab Corp. (SCHW) alleging civil fraud related to the brokerage firm's marketing and sales of auction-rate securities, according to people familiar with the situation, according to a Journal report.

Gilead Sciences (GILD) announced that it has received a subpoena from the Office of the Inspector General of the Dept. of Health and Human Services requesting documents regarding the development, marketing and sales of Ranexa. Ranexa is approved for the treatment of chronic angina and was developed and originally commercialized by CV Therapeutics, a company that Gilead acquired in April 2009.

In economic news Monday, the NAHB homebuilder index, which has been on an improving trend since hitting a record low 8 in January, rose to 18 in August from 17 in July. The single family sales index was steady at 16; July's index was revised down to from 17 originally. The future sales index jumped to 30 from 26 in July. The index of prospective buyer traffic rose 3 points to 16 from a 13 last month, which was revised from 14.

"The data are a little better than expected, and likely feed off of some of the better housing starts and home sales figures in recent months," says S&P.

The Empire State manufacturing index surged to 12.1 in August, from -0.6 in July. It was 2.8 a year ago. Strength was broadbased. The employment index improved to -7.5 from -20.8 (-4.5 last August). The new orders index rose to 13.4 from 5.9 (-2.2 a year ago). Prices paid also rose to 13.8 from 10.4 (65.2 last August). Prices received fell to -12.8 from -8.3 (32.6 a year ago). The 6-month ahead general business conditions index rose to 48.2 from 34.0 (and from 34.6 last year), with the employment index rising to 10.2 from 6.5 (14.7 last year). The data are much better than expected, but aren't likely to give much support to the beleaguered equity markets today,

The market was awaiting a report later Monday on the NAHB Housing Market Survey. Also, the Fed was expected to release its quarterly Senior Loan Officer Survey Monday afternoon.

Japan's gross domestic product grew 0.9% in April-June, slightly short of a median market forecast of a 1.0% increase. That puts Japan in the camp of G7 countries that have pulled out of recession, along with Germany and France. The expansion, the first in five quarters, followed a revised 3.1% contraction in January-March and a record 3.5% fall in the final quarter of 2008.