Dow off 141, loses most of Friday's gain

Stocks sell off heavily in late trading on more worries about the economy. But deals erupt, with Intel buying Infineon's mobile chip business and 3M buying Cogent. Oil falls; gold moves higher.

By Charley Blaine Aug 30, 2010 2:33PM

Charley BlaineUpdated: 8:10 p.m. ET

One of the stock market's more unfortunate habits of late -- a lot of selling in the last hour of trading -- reared its head this afternoon. The result: The market gave up most of its gains from Friday.

The declines came despite a steady stream of deal announcements and rumors of more deals.

The Dow Jones industrials ($INDU) closed down 141 points, or 1.4%, to 10,010 after gaining 165 points on Friday.  The Standard & Poor's 500 Index ($INX) was off 16 points, or 1.5%, to 1,049, and the Nasdaq Composite Index ($COMPX) had dropped 34 points, or 1.6%, to 2,120.

Much of the decline was disappointment with a government report on personal income and spending. Gains in income (0.2%) and spending (0.4%) were in line with estimates, but investors were hoping for larger gains. Result: ever more worries that pressures on consumer finances could keep the U.S. economy struggling for the foreseeable future.

"The pessimism in the market has gotten pretty acute," said Bruce Bittles, the chief investment strategist at Robert W. Baird in Milwaukee.

The major averages will end August lower. With today's close, the Dow is off about 4.4% for the month, which would be its second-worst month of the year, after falling 7.9% in May.

The S&P 500 and the Nasdaq, down 4.8% and 6% for the month, respectively, are looking at their worst months of the year.

More big economic reports come Tuesday, including the S&P/Case-Shiller House Price Index, a report on consumer confidence and the Chicago Purchasing Managers Index. In addition, the Federal Reserve will release the minutes of its Aug. 10 meeting.

Futures trading suggests stocks will open modestly higher on Tuesday.

Consumer worries hit banks, retailers
Because of worries about consumers -- and especially consumer debt -- banks and retailers were among the market's weakest sectors. Home Depot (HD) was the biggest laggard among the 30 Dow stocks, down 2.6% to $27.99.  It was followed by Bank of America (BAC), down 2.5% to $12.32. Wells Fargo (WFC), which has one of the nation's largest mortgage-lending businesses, was off 3.1% to $23.25 and has fallen 31% since peaking on May 3 at $33.88.

Automakers, who report August sales on Wednesday, also declined. Ford Motor (F) fell 1.8% to $11.35; Toyota Motor (TM) was off 1.6% to $68.25.

Another issue was at play: concern about the economic health of Europe.

While the financial crisis has eased, there are growing worries that another is rising. That is, massive government spending cuts mean lower economic growth than expected. So, the dollar was rising against the British pound and the euro.

That has limited companies that generate half or more of their business outside the United States, such as Boeing (BA), United Technologies (UTX), Caterpillar (CA) and Cisco Systems (CSCO). The four saw losses ranging from 1.7% to 2.4% today.

Crude oil setled down 47 cents to $74.70. Gold settled up $1.30 to $1,239.20 an ounce. Interest rates were lower, with the 10-year Treasury yield falling to 2.545% from 2.652% on Friday. The U.S. Dollar Index, which measures the greenback against a basket of currencies, was up 0.4% to 83.22 and is up 2% for the month and 6.5% for the year.

Energy prices -- New York close
 

Mon.

Fri.

Month chg.

YTD chg.
Crude oil 

$74.70

$75.17

-5.38%

-5.87%
(per barrel)











Heating oil

$2.0377

$2.0575

-2.41%

-3.68%
(per gallon)











Natural gas 

$3.8120

$3.7050

-22.57%

-31.59%
(per mil. BTU)











Unleaded gasoline

$1.9078

$1.9148

-10.18%

-7.14%
(per gallon)











Retail gasoline

$2.6780

$2.6780

-2.30%

1.48%
(per gallon; AAA)











 

A note: Numbers originally published in this table on Monday were incorrect. These are the corrected numbers.


Consumer spending up, incomes lag
Consumer spending in the U.S. rose more than forecast in July, exceeding gains in incomes and indicating the economy may avoid slipping back into a recession.

Purchases rose 0.4% in July, the most since March, after little change the previous month, the Commerce Department said today. Incomes climbed 0.2%, less than projected, and the savings rate dropped.

Disposable incomes, or the money left over after taxes, dropped for the first time since January after adjusting for inflation, showing how the lack of jobs may prevent spending from strengthening.

Companies from Intel (INTC) to J Crew (JCG) are cutting forecasts as unemployment and flagging confidence prompt households to scale back, Bloomberg News noted.

The Labor Department will report on the U.S. unemployment rate and nonfarm payroll growth on Friday.

Takeover frenzy heating up?
While the hand wringing about consumer spending continued, deal making appears to be rising.

This trend has emerged in the last few weeks and may  intensify in the fall. It is reminiscent of the flurry of takeover fights that erupted in the late summer of 1982 as a miserable recession looked as if it would go on forever.

The deals are not bets on an improving economy. Rather, they are probably strategic moves designed (or pitched to CEOs by investment bankers) to set up the acquirer for when the recovery finally comes. And they may also suggest that buyers see big bargains.

Intel had the splashiest of today's deals: It agreed to buy Infineon's (IFNNY) mobile chip business for $1.5 billion. Infineon's mobile business supplies radio chips to Apple's (AAPL) iPhone, but it hasn't yet developed products that will compete strongly in the next-generation 4G market.

Intel was off 2.2% to $17.96. Infineon, interestingly, was down 6.4% to $5.56, as investors wondered if Infineon was selling the business for too little.

After Intel, 3M (MMM) got into the buying game, agreeing to pay $943 million, or $10.50 a share, for Cogent (COGT), a maker of finger print, palm, face and iris detection systems.

The price is an 18% premium to Cogent's close on Friday of $8.91. Cogent rose 24.4% to $11.09 today, a signal investors expect 3M to sweeten the offer. Or that another bidder may emerge. 3M was off 1.7% to $79.65.

There were reports from Techcrunch and Venturebeat -- as yet unconfirmed -- that Cisco was interested in acquiring Skype, the Internet telephone service. Skype was bought by eBay for $1.9 billion in 2005. Now, eBay is spinning it off -- unless Cisco buys it first.

What's not clear is what the price might be.

Meanwhile, Genzyme (GENZ) climbed 3.4% to $69.91 after rising to as high as $70.42. Sanofi-Aventis (SNY) made a public cash offer of $18.5 billion for the U.S. biotechnology company and said it would "consider all alternatives" to complete a deal after the U.S. company rejected the bid. Sanofi was off 1% to $28.63 in New York.

We should note that Dell (DELL) said Sunday it was re-evaluating its interest in data-storage maker 3Par (PAR) after Hewlett-Packard (HPQ) offered $30 a share, or $2 billion, for the company on Friday. That bid came only hours after Dell had offered $27.30 a share.

Dell had three business days to match or raise its bid. Dell shares were up 1.1% to $12.02, a signal investors are betting Dell walks away now.

Hewlett-Packard was up 1.5% to $38.56 not because of 3Par but because its board agreed to buy back $10 billion in company shares.

A soft day for stocks
Hewlett-Packard was the sole winner among the 30 Dow stocks. Next was Johnson & Johnson (JNJ), down 0.5% to $57.30, and Alcoa (AA), off 0.7% to $10.25.

Meanwhile, only 15 stocks in the Nasdaq-100 Index ($NDX.X) were higher. The index was down 11 points, or 1.1%, to 1,772.

Short hits from the markets -- New York close
 
  Mon.

Fri.

Month chg.

YTD chg.
Treasury yields




 





13-week Treasury bill

0.130%

0.140%

-7.14%

160.00%
5-year Treasury note 

1.393%

1.496%

-12.83%

-48.14%
10-year Treasury note

2.545%

2.652%

-12.45%

-33.78%
30-year Treasury bond

3.602%

3.698%

-9.43%

-22.39%
Currencies







 

 
U.S. Dollar Index

83.226

82.968

1.92%

6.40%
British pound

$1.5485

$1.5542

-1.32%

-4.27%
(in U.S. $)











U.S. $ in pounds

£0.6458

£0.6434

1.33%

4.46%
Euro in dollars

$1.2697

$1.2770

-2.74%

-11.41%
(in U.S. $)











U.S. $ in euros

€ 0.7876

€ 0.7831

2.82%

12.89%
U.S. $ in yen 

84.96

85.33

-1.95%

-8.64%
Canada dollar

$0.948

$0.953

-2.49%

-0.31%
(in U.S. $)











U.S. dollar 

$1.056

$1.049

2.63%

0.31%
(in Canadian $)











Commodities

 

 

 

 
Gold

$1,239.20

$1,237.90

4.87%

13.05%
(per troy ounce)











Copper

$3.4130

$3.3630

3.07%

1.99%
(per pound)











Silver

$19.0380

$19.0390

5.75%

13.02%
(per troy ounce)











Wheat 

$6.7125

$6.6250

-3.17%

23.96%
(per bushel)











Corn

$4.2550

$4.2100

8.34%

2.65%
(per bushel)











Crude oil 

$74.62

$75.17

-5.48%

-5.97%
(per barrel)










 


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