Stocks finished a choppy session lower Monday, extending their recent downtrend amid broad weakness in global markets along with an early decline in commodity prices. Inflation worries and uncertainty over the Federal Reserve's interest-rate plans drove a shift out of speculative areans, led by emerging market equities and commodity futures, says Standard & Poor's Equity Research.
Still, major indexes perked up from session lows in the final hour. This late recovery may indicate the market is getting set for an oversold bounce, says S&P Equity Research.
The Dow Jones industrial average edged lower 18.73 points, or 0.17%, to 11,125.33, with Microsoft (MSFT) leading gainers. The broader Standard & Poor's 500 index slipped 4.97 points, or 0.39%, to 1,262.06. The tech-heavy Nasdaq composite lost 21.03 points, or 0.96%, to 2,172.86.
The markets have priced in more risk as they consider the Fed's next move, some analysts say. "The longer-term structure of the market indices remains positive, but equity markets appear to be testing the character of the new Fed Chairman," writes Merrill Lynch chief market analyst Mary Ann Bartels in a research report. "'Data dependent' leaves investors with uncertainty on Fed policy, and therefore, markets are likely to remain volatile until the Fed gives the markets more clarity."
However, recent declines don't point to a market collapse, other analysts say. "Stock markets have been pummeled of late by inflation jitters, slowdown fears and alleged investment community complacency," writes Tobias Levkovich, chief U.S. equities strategist at Citigroup. He adds that the firm's sentiment, earnings expectations and valuation work do not support investor fears about a meltdown in the U.S. equity market.
The economic calendar was quiet to start the week. Investors were looking ahead to Wednesday's reports on durable goods orders and new home sales for April. A second reading on first-quarter gross domestic product (GDP) and April figures for existing home sales are set to follow Thursday, while a report on personal savings, consumption and income will be in focus Friday.
On Monday, investors were assessing falling commodity prices, which rebounded by session's end but still weighed on corresponding equities. Alcoa (AA), Newmont Mining (NEM) and Phelps Dodge (PD) were among the big losers.
M&A news also returned to the picture. NYSE Group (NYX) was lower after the owner of the New York Stock Exchange offered about $10.2 billion in cash and stock for Euronext NV, Europe's second-largest stock exchange.
Meanwhile, Wal-Mart (WMT) was little changed after the retail giant agreed to sell its unprofitable South Korean business to Shinsegae Co. for $869 million.
Outside of M&A, Bausch & Lomb (BOL) was lower on news it received an IRS notice of liability for the 1999 tax year. Shares were already battered by the recall of the company's contact lens cleaner.
Home-improvement retailer Lowes (LOW) was lower despite posting 44% higher quarterly profit, ahead of Street expectations. Rival Home Depot (HD) was also down.
On the positive side, Internet media outfit Yahoo (YHOO) was higher after a report that a redesigned Web site could drive the stock higher.
Packaged-foods maker Campbell Soup (CPB) was up after posting 14% higher profit for its fiscal third quarter, on a 6% sales increase.
In the energy markets, June West Texas Intermediate crude oil futures closed up 70 cents at $69.23 a barrel following an early decline, rebounding after Venezuelan Oil Minister Rafael Ramirez hinted at a production cut. Exxon Mobil (XOM) rose after falling in early trading. Nevertheless, many analysts say oil still has a long way to go on the downside, according to S&P Equity Research.
European markets finished lower. In London, the Financial Times-Stock Exchange 100 index fell 124.7 points, or 2.2%, to 5,532.7. Germany's DAX index dropped 126.04 points, or 2.22%, to 5,546.24. In Paris, the CAC 40 index lost 131.07 points, or 2.65%, to 4,813.5.
Asian markets finished lower. Japan's Nikkei 225 index skidded 297.58 points, or 1.84%, to 15,857.87. In Hong Kong, the Hang Seng index tumbled 507.84 points, or 3.11%, to 15,805.52. Korea's Kospi index sank 33.7 points, or 2.46%, to 1,338.59.
Treasuries rallied early on a flight to safety out of the stock, energy, and commodity markets, says S&P Equity Research. But a late rebound in oil futures and hawkish comments from Dallas Fed President Richard Fisher picked yields up from session lows, says Action Economics. Prices for 10-year Treasury notes rose to 100-22/32 with a yield of 5.04%, while 30-year bonds edged higher to 90-14/32 for a yield of 5.13%.