closed sharply and broadly lower Monday, with major indexes down over 2% on the session. The Dow Jones industrial average sank back into negative territory for the year to date.
A weak reading on manufacturing in the form of the Empire State index pressured the market, threatening investors' bets on an economic recovery later this year. April data from the Treasury Dept. showed a net outflow of capital out of the U.S., and the NAHB housing market index for June fell a point lower.
Meanwhile, steep drops in oil and metal futures prices put downward pressure on commodities producers.
On Monday, the Dow Jones industrial average finished lower by 187.13 points, or 2.13%, at 8,612.13. The broad Standard & Poor's 500-stock index fell 22.49 points, or 2.38%, to 923.72. The tech-heavy Nasdaq composite index lost 42.42 points, or 2.28%, to 1,816.38.
Meanwhile, Treasuries rallied, with the yield on the 10-year note falling to 3.73%. The dollar was up after Russia's Finance Minister reaffirmed that the greenback is the world's major reserve currency.
August gold futures sank to $929.00 per ounce. July crude oil futures fell to $70.34 per barrel.
Markets in Europe slumped. London stocks fell 2.61%, Paris was down 3.20%, and Frankfurt dropped 3.54%. Asian stocks finished mixed, with Tokyo down 0.95%, Hong Kong lower by 2.07%, and Shanghai up 1.67%.
The world's largest economies are beginning to stabilize but still face major risks amid an ongoing global recession, G8 finance ministers say. At a meeting in Italy of G8 nations over the weekend, the ministers said stock markets were rising, interest rates more stable, and consumer confidence was returning. However, U.S. Treasury Secretary Timothy Geithner led warnings that it was too early to wind down economic stimulus packages. He said they should remain in place until a global recovery was under way.
In company news Monday, conglomerate United Technologies ( (UTX)
) indicated that the planned to affirm its earnings guidance.
Boeing ( (BA)
) said it expected capital to be more readily available ahead.
Goldman Sachs ( (GS)
) downgraded Wal-Mart ( (WMT)
) to neutral.
Among Monday's economic developments, the U.S. Empire State index fell to -9.4 in June from -4.6 in May, weaker than the -8.7 reading seen a year ago and in contrast to expectations for an increase to -3.0. However, the index is far above its all time record low of -38.2 seen in March. Some weakness was seen in inventories, falling to -25.3 from -21.6. However, the employment index rose to -21.8 from -23.9, while new orders edged up to -8.2 from -9.0. Both prices paid and received were up to -5.8 from -11.4 and -12.7 from -27.3, respectively. Moreover, the 6-month ahead index improved to 47.8 from 43.8.
Overall, while the headline reading was negative, details of the report weren't as bad, according to Standard & Poor's senior economist Beth Ann Bovino.
The U.S. NAHB homebuilder survey index fell to 15 in June after having climbed to 16 in May from 8 at the beginning of the year. The single family index was unchanged at 14, but the 6-month outlook on sales dipped to 26 from 27. The index of prospective buyer traffic was flat at 13.
U.S. capital flows (TIC) data showed foreigners sold $53.2 billion in U.S. assets in April, after purchasing $25.0 billion in March (revised from $23.2 billion). Overseas accounts bought $41.9 billion in Treasury coupons, vs. $55.3 billion in March.
Three Federal Reserve officials weighed in on the ecoonomy and interest rates on Monday.
Chicago Federal Reserve Bank President Don Evans said that the economy is closer to a turning point now than two months ago. He reckoned that non-standard Fed policy should be unwound once the economy is more clearly headed for sustainable growth. Meanwhile, he is braced for more deterioration in jobs before Fed policy gains full traction, while inflation pressures won't arise without a broader credit expansion. He sees TALF helping to jump-start the ABS market, while spreads have been improving even as long yields rise.
Dallas Fed President Richard Fisher said being a "screeching hawk" is not appropriate right now, given so much slack in the economy that inflation is not currently an issue, in a Bloomberg TV interview. He doesn't see the Fed hiking in the immediate future, though it is constantly working on its exit strategy. He is not convinced that the back-up in rates is due to fears about monetizing the debt, but largely a measure of supply and demand. Fisher said the Fed's purchases of Treasuries have had an impact on the economy and private corporate spreads. Stocks and yields remain near session lows after this relatively dovish salvo from the arch-hawk.
St. Louis Fed President James Bullard said in a CNBC interview that he is cautiously optimistic for some second half growth, while the banking system is still stressed, though measures such as the Libor/OIS spread have clearly improved. He also sees deflationary risks as abating.