Stocks drop for 4th straight day

[August 20, 2013]  NEW YORK (AP) -- U.S. stocks dropped for a fourth day in a row Monday as investors continued to express worry about the recent rise in bond yields. Banking stocks also dragged down the broader market.

The Dow Jones industrial average dropped 70.73 points, or 0.47 percent, to 15,010.74. The Standard & Poor's 500 index lost 9.78 points, or 0.6 percent, to 1,646.05. The market fell broadly; 4 stocks fell for every one that rose on the New York Stock Exchange.

The technology-heavy Nasdaq composite index also fell, losing 13.69 points, or 0.48 percent, to 3,589.09. The Russell 2000 index, which is made up of primarily riskier, small-company stocks, fell nearly twice as much as the S&P 500. That index fell 11.05 points, or 1 percent, to 1,013.25.

Investors had little data to digest Monday, so the focus for many remained the ongoing climb in bond yields. The yield on the benchmark 10-year Treasury note rose to 2.88 percent from 2.83 percent Friday. Yields are at their highest level since July 2011.

The 10-year yield has been rising sharply from a recent low of 1.63 percent reached in early May as the economy has improved and as investors anticipate an end to the Federal Reserve's huge bond-buying program as early as next month. The program has been keeping interest rates low to encourage borrowing and hiring.

"We've been in this artificially low interest rate environment for so long, it's hard to figure out what 'normal' is," said Jim Dunigan, chief investment officer with PNC Wealth Management.

The quick rise in bond yields has worried some investors because it leads to higher interest rates on many kinds of loans, including home mortgages and corporate loans.

"I do think we're not too far away from that point in time where this heavy increase in bond yields is going to start impacting the (stock) markets," said Doug Peebles, chief investment officer of AllianceBernstein Fixed Income.

Homebuilders were hit hard on Monday as traders worried that higher mortgage rates could upset a recovery in the housing market. Lennar, PulteGroup and D.R. Horton all fell roughly 4 percent.

Some investors expect the 10-year note could rise above the psychologically important 3 percent mark as early as month's end.

Monday's losses come after the Dow posted its worst week of 2013. The benchmark index fell 2.2 percent last week and the S&P 500 lost 2.1 percent. The Dow and the S&P 500 have not had a four-day losing streak since December 2012.

Bank stocks moved lower after a report from the Federal Reserve appeared to indicate that large bank holding companies -- firms such as JPMorgan Chase & Co., Citigroup, Bank of America and others -- could need to raise additional capital.

In the report, the central bank said large banks had made "substantial improvements" in how they plan for future potential financial crises; however the Fed also said there was "considerable room for advancement."

JPMorgan fell $1.46, or 2.7 percent, to $51.83 while Bank of America fell 27 cents, or 1.9 percent, to $14.15. Morgan Stanley fell 66 cents, or 2.5 percent, to $25.81.

Banks have faced intense regulatory pressure to increase their capital ratios -- the amount of money they hold in reserve -- since the financial crisis five years ago. Several banks that failed, including Washington Mutual, Lehman Brothers and Bear Stearns, were criticized for not holding enough capital to protect their balance sheets from the losses stemming from bad mortgages.

Investors should expect more focus on the Fed this week. On Wednesday the Federal Reserve will publish the minutes of its July policy meeting, and on Thursday the Fed starts its annual conference in Jackson Hole, Wyo.

The Fed minutes will be the most important item for investors this week, said Kristina Hooper, head of investment and client strategies for the U.S. at Allianz Global Investors.

"It will give us insight into what the Fed is looking at to decide," Hooper said. "I don't think the Fed has made up its mind on what it's going to do in September yet."

A sell-off in retailers continued Monday. Saks, the luxury retailer, reported a wider loss two weeks after agreeing to be bought by the Canadian retailer Hudson's Bay, the parent company of Lord & Taylor, for $2.4 billion.

The retail sector got off to a dismal start last week after Wal-Mart, Macy's and Nordstrom cut their sales outlooks for the year. This week, J.C. Penney, Target, the Gap, Home Depot, Sears and others report quarterly earnings. The retail industry is often closely watched by investors because consumer spending makes up a large chunk of the U.S. economy.

Gap fell 53 cents, or 1.2 percent, to $42.59. Staples lost 43 cents, or 2.55 percent, to $16.41.

One bright spot in Monday's sea of red were technology stocks. Intel was biggest gainer in the 30-member Dow after getting an upgrade from PiperJaffray. The investment bank predicted strong sales for chips used in tablet computers and mobile devices. Intel rose 37 cents, or 1.7 percent, to $22.28.

Other major tech stocks also rose. Apple rose $5.41, or 1.1 percent, to $507.70 and Google rose $8.74, or 1 percent, to $865.60.

Among other stocks making big moves:

• Zillow said it was buying New York-focused real estate website StreetEasy for $50 million. Zillow dropped $6.48, or 7.1 percent, to $84.74.

• Dollar General rose $1.62, or 3.1 percent, to $54.09, the biggest gain in the S&P 500. Analysts at JPMorgan Chase upgraded the stock to "overweight" from "neutral" and raised their price target to $64 from $51, citing signs that sales and profit margins were improving.

[Associated Press; By KEN SWEET]

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