Stocks ended Monday's session with sharp losses as a report showing slower growth in the services sector added to concern that the U.S. economy is weaker than previously thought.
The Dow Jones industrial average lost 269.50 points, or 3.24%, to 8,043.63. This comes on the heels of Friday's 193-point (2.27%) decline after a weak employment report stoked fears that the economy could fall back into a recession. A disappointing earnings outlook from Disney (DIS) also helped send investors to the exits on Friday.
The tech-heavy Nasdaq composite index was off 41.91 points, or 3.36%, to 1,206.01, led by declines in semiconductor-related stocks. The broader Standard & Poor's 500-stock index was down 29.64 points, or 3.43%, to 834.60.
In economic news Monday, the July non-manufacturing ISM report -- a read on activity in the services sector -- came in at 53.1, down from 57.2 in June. Economists had expected the index to fall to 54.5. A reading above 50 indicates expansion in the sector. The slowdown in activity is consistent with recent figures that suggested the economy hit a wall heading into the summer, says S&P MMS.
There are no major economic reports due out Tuesday. Other economic reports this week include Wednesday's updates on June wholesale inventories and consumer credit data, while Thursday brings the July producer price index. On Friday, preliminary second-quarter productivity data is due.
Earnings updates could also sway the markets this week.
Investors are eagerly awaiting quarterly results from titan Cisco Systems (CSCO) on Tuesday. On Monday, Lehman Brothers changed its rating on Cisco shares to equal weight vs. strong buy under its old rating system. Cisco shares fell about 4% Monday.
On Monday, consumer-products giant Procter & Gamble (PG) reported better-than-expected fourth-quarter core EPS of $0.77, vs. $0.63 a year ago, on 6% sales growth. Results were driven by strength in its health care and beauty lines. The company raised its forecast for the first quarter to 11% to 15% EPS (core) growth on 4% to 6% sales growth and 8% to 10% volume growth.
Among other sectors on the move Monday, broadcasting stocks fell sharply after Wachovia Securities downgraded a few names in the group, including Clear Channel Communications (CCU), citing poor economic news and a depressed advertising environment.
Financials JP Morgan (JPM) and Citigroup (C) were down after Lehman changed its rating system and put both stocks as equal weight, rather than strong buy, and cut its price targets. And Merrill Lynch (MER) lost ground after Keefe Bruyette downgraded the stock to market perform from outperform.
Consumer finance stocks were also under pressure as economic worries and the bear market spurred fears that consumers will tighten wallets.
One bright spot was Philip Morris (MO), which rallied after saying today's California Supreme Court ruling, which gives tobacco makers limited protection from smoker lawsuits, could provide additional grounds to overturn three recent verdicts in smoking cases.
Treasuries ended higher in price as stocks continued to lose ground. However, supply headwinds may temper the rally as the Treasury auctions over $90 billion in paper, says S&P MMS. On Tuesday, the Treasury will sell $22 billion in 5-year notes.
Meanwhile, prices of Fed funds futures, a vehicle for market pros to bet on future interest rate moves, rose Monday. According to S&P MMS, the market continues to price in significant chance of a Fed rate cut on further declines in stocks and following forecasts last week from a couple of major Wall Street firms expecting aggressive easing later this year (as much as 75 basis points). S&P MMS still believes the most likely scenario is for the Fed to remain on hold for an extended period. The Fed will meet to decide monetary policy on Aug. 13.
European markets were sharply lower amid some negative economic news. In London, the Financial Times-Stock Exchange 100 index lost 79.10 points, or 1.94%, to 3,996.40. July industrial production skidded 4.3%, the largest decrease in 23 years amid decreased demand for UK goods. But a separate report showed UK housing prices spurted 1.9% in July.
In France, the CAC 40 fell 129.99 points, or 4.01%, to 3,115.38. And in Germany, the DAX Index skidded 199.84 points, or 5.66%, to 3,332.65 as the German PMI index decreased to 50.8 from 50.9.
In Asia, the markets finished lower. The Nikkei was down 4.73 points, or 0.05%, to 9,704.93, weighed down by declines in semiconductor-related shares after Tokyo Electron lowered its fiscal year 2002 (ends March 2003) earnings projections and National Semiconductor of the U.S. revised down its June-August sales forecast. However, the market was supported by hopes of a tax cut.
In Hong Kong, the market lost 129.39 points, or 1.29%, to 9,862.33.