U.S. stocks paused for a breather Monday, after a month-long rally saw indexes scaling multi-month highs. After last week’s big gains, investors appeared cautious and refrained from making new bets. In the absence of any major economic and corporate developments, stocks drifted lower even as investors turned their attention towards Fed for indications on how the economic picture is shaping up. Concerns over the oncoming auction of government treasuries also played in the minds of investors.
The Dow Jones industrial average retreated 32 points, or 0.3%. The S&P 500 index fell 3 points, or 0.3%. The Nasdaq dipped 8 points, or 0.4%. On the New York Stock Exchange, 1.09 billion shares exchanged hands and losers were ahead of winners by a narrow margin.
The two-day Fed meet that begins today is expected to keep interest rates near close to zero. However, Bernanke and Co’s assessment of how the economy is faring could be decisive and therefore its moves would be closely watched.
Seven of the ten S&P500 industry groups ended in the red, led by declines in basic material shares (-1.7%), industrials (-0.9%), financials (-0.8%), and technology stocks (-0.6%). Health care (+0.7%) and utilities (+0.3%) showed strength as investors snapped up defensive plays. Material stocks declined as the US dollar gained against a basket of currencies. Basic material shares fell due to a decline in commodities. Alcoa (NYSE:AA) shares retreated 2.4% and Freeport-McMoRan Copper & Gold (NYSE:FCX) dropped 1.6%. Retailers also headed lower in the face of upcoming earnings reports by the majors, including Abercrombie & Fitch (NYSE:ANF), JC Penney (NYSE:JCP), Macy’s (NYSE:M), and Nordstrom (NYSE:JWN). However, yesterday McDonald’s (NYSE:MCD) reported a stronger-than-expected 4.3% rise in July same-store sales, reflecting its appeal to the value-conscious consumer.
Analysts’ adjustments also reflected on some stocks yesterday. Eli Lilly (NYSE:LLY) dropped 3% after Goldman Sachs (NYSE:GS) downgraded the stock to “sell” from “neutral” and added the company to its Conviction Sell list, citing its risk at having the industry’s largest “patent cliff.” Merck (NYSE:MRK), however, rose 1.7% after being reinstated with a “buy” rating at Goldman Sachs (NYSE:GS). Merck was also added to Goldman Sachs’ (NYSE:GS) American Conviction buy list on its current valuation and product pipeline. Best Buy (NYSE:BBY) fell 5.3% after Goldman Sachs (NYSE:GS) downgraded the stock to “neutral.” Research in Motion (NASDAQ:RIMM) shares plunged 4.9% as the possibility of an iPhone launch at Verizon (NYSE:VZ) led analysts at UBS (NYSE:UBS) to downgrade the shares from “buy” to “neutral.” UBS (NYSE:UBS) lowered its rating on Yum Brands (NYSE:YUM) to “neutral” from “buy” on concerns about “sluggish” sales.
Tuesday will also see the first of the $75 billion in Treasury auctions scheduled for the week. $37 billion in 3-years is slated for today, with $23 billion scheduled tomorrow and $15 billion on Thursday. The sales are not expected to find a lack of buyers.
