BUSINESSWEEK - Market Snapshot July 28, 2008, 4:50PM EST

Financial stocks gave up recent gains as a rise in oil prices and word of a record U.S. budget gap weighed on the market Monday

by Ben Steverman

Major U.S. stock indexes skidded Monday as a recent rebound for financial stocks faltered, oil prices rose and a report said the U.S. budget deficit could swell to a record. Traders also weighed news that private equity firm Kohlberg Kravis Roberts & Co. plans to go public.

On Monday, the Dow Jones industrial average fell 239.61 points, or 2.11%, to 11,131.08. The broader S&P 500 fell 23.39 points, or 1.86%, to 1,234.37. The tech-heavy Nasdaq composite index lost 46.31 points, or 2%, at 2,264.22.

S&P’s diversified financial services index plunged 5.44% Monday, and the market’s worst performers included insurer AIG (AIG), down 12.3%; brokerage house Merrill Lynch (MER), off 12%; and investment bank Lehman Brothers (LEH), down 10.4%.

Financial stocks had risen in recent sessions as they attracted bargain hunters. However, that rally fizzled Monday from a lack of true buying interest from investors, says John Wilson, chief technical strategist at Morgan Keegan.

“I don’t think the market is going to do well until people [breathe] a sigh of relief about financials,” Wilson says. “They’ve got to stabilize.”

Even news that the U.S. Congress approved a bill aimed at propping up the housing sector failed to help financial stocks. In fact, after trading higher earlier in the day, troubled mortgage financiers Fannie Mae (FNM) and Freddie Mac (FRE) dropped Monday, Fannie by 10.7% and Freddie by 6.7%.

Trading volume on Monday was light, with 23 stocks falling in price for every nine positive on the New York Stock Exchange. On the Nasdaq, the ratio was 21 to 7 negative.

Oil prices rose Monday to nearly $125 per barrel, providing another drag on stocks. Nigerian rebels attacked two Royal Dutch Shell (RDSA)pipelines on the Nembe Creek trunk line in Rivers State. On the NYMEX, crude oil for September delivery ended $1.47 higher at $124.73 per barrel.

According to a Bush Administration official cited in an Associated Press report, the next U.S. president will inherit a record budget deficit approaching $490 billion. The official said the deficit was being driven to an all-time high by the sagging economy and the stimulus payments being made to 130 million households in an effort to keep the country from falling

into a deep recession.

Major economic news and profit reports are expected to keep Wall Street busy this week. Data on gross domestic product, the labor market and consumer confidence are due over the next several days. Also, profit reports from ExxonMobil (XOM), Disney (DIS), Starbucks (SBUX) are expected along with reports from almost 25% of the S&P 500.

KKR’s public offering will be accomplished through the takeover of its investment fund KKR Private Equity Investors LP, which is already publicly traded in Europe. The deal could value the firm at as much as $15 billion, despite tough times for the private equity industry.

Among stocks in the news Monday, Kraft Foods (KFT) posted earnings of 58 cents per share, vs. 50 cents a year ago, as revenue rose 24%. The firm raised its 2008 revenue growth outlook to at least 6%.

XM Satellite Radio Holdings (XMSR) and Sirius Satellite Radio (SIRI) won approval for their planned merger on a 3-to-2 vote by the Federal Communications Commission. The companies agreed to pay $19.7 million in fines to settle FCC rule violations.

Amgen (AMGN) announced positive findings from the trial of denosumab, a treatment for postmenopausal osteoporosis. Analysts from Rodman & Renshaw, Jefferies and Morgan Stanley reportedly upgraded the stock.

Verizon Communications (VZ) reported earnings of 67 cents, vs. 58 cents a year ago, as revenue rose 3.7%. The company says it added a net 1.5 million customers.

Tyson Foods (TSN) posted a loss of 1 cents per share, vs. earnings of 32 cents a year ago, as higher costs offset a 3.5% rise in sales.

Major European indexes were lower Monday. In London, the FTSE 100 index fell 0.75% to 5,312.60. In Paris, the CAC 40 lost 1.2% to 4,324.45, while Germany’s DAX index fell 1.33% to 6,351.15.

In Asia, Japan’s Nikkei 225 rose 0.14% to 13,353.78, while Hong Kong’s Hang Seng Index fell 0.24% to 22,687.21.

Treasury market

Bonds soared Monday as investors ran to a safe haven from the falling equities market. The two-year Treasury rose 08/32 to 100-11/32 for a yield of 2.57%; 10-year notes gained 24/32 to 98-30/32 for a yield of 4%; and the 30-year bond added 1-08/32 to 96-10/32 for a yield of 4.61%.

Steverman is a reporter for BusinessWeek’s Investing channel.

source: BusinessWeek

This entry was posted on Tuesday, July 29th, 2008 at 1:44 pm and is filed under Business News, Stock Investment, US Recession. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.