GM Drags on Dow; Banks Bounce Back
Stocks retreated Monday after a five-week rally as investors braced for this week's round of earnings and a potential bankruptcy filing by General Motors.
“It’s time for a pullback, we’re getting a little ahead of ourselves … The news out there is still pretty tepid,” Dave Rovelli, managing director of equities at Canaccord Adams, told CNBC this morning.
“[Y] ou’ve gotta take some profits,” Rovelli said. “I just wouldn’t chase stocks in this environment.”
Shares of General Motors tumbled more than 10 percent as the Treasury Department instructed the auto maker to prepare for a bankruptcy filingby a June 1 deadline.
The government is looking at a plan that would bring GMout of bankruptcy quickly, but GM CEO Fritz Henderson said the company can still survive without filing for protection, the New York Times reported.
Boeing shares skidded after the aerospace giant issued a profit warning late Thursday, citing the impact of lower-than-expected airplane prices.
Analysts responded Monday: Jefferies slashed its price target and earnings forecast on Boeing but maintained a "buy rating on the stock. Cowen, however, slashed its rating on the stock to "underperform" from "neutral," citing the impact of Pentagon budget cuts announced last week.
Today is quiet on the earnings front but later this week, we'll get reports from Johnson & Johnson , Intel , JPMorgan , Citigroup and CNBC parent General Electric .
Investment strategist Abby Joseph Cohen said she thinks the worst may be over for stocks— and the economy.
"[S]omething has changed over the past month and that is that the consensus numbers aren’t being adjusted very much," Cohen, president of the Goldman Sachs Global Markets Institute, told CNBC. "I think that means that many investors now believe that the forecasts are finally as low as they need to be.”
Still, as worries about GM boil, the CBOE Volatility Index, widely considered the best gauge of fear in the market, rose to near 40. Still, Goldman Sachs notes that the one-month implied S&P 500 index volatility is down 12 percent so far this quarter, when it is typically up 10 percent at this point in earnings season.
Meanwhile banks that are receiving money from the federal government are facing a probe from Congress about fees and interest rates they are charging customers, according to the Wall Street Journal.
Financial stocks started the day lower after a run-up last week following Wells Fargo's better-than-expected earnings forecast that sparked renewed hopes for banks and boosted the market.
But, true to the short-term nature of this market, investors saw that as a buying opportunity and jumped in to scoop up financials.
The pros were still digesting Wells Fargo's forecast: KBW bank cut its rating on Wells Fargo to "underperform" from "market perform," saying much of the positive news in the bank's preannouncement was due to merger accounting (re. it's merger with Wachovia), revised accounting standards and mortgage-default moratoriums, and that the bank will still be hit by economic weakness.
But Rochdale Securities analyst Dick Bove said he's still got a "buy" rating on Wells Fargo as he believes the bears have a point but still sees the bank's business is improving rapidly.
Bove's also got a "buy" rating on JPMorgan , saying the bank is "clearly not insolvent," though he conceded that the bank's provisions for loan loasss would remain high for the next few years.
Citigroup and Bank of America were sharply higher.
In deal news, Express Scripts will buy the NextRx prescription-drug businessof WellPoint for $4.68 billion in a significant expansion for the pharmacy-benefits manager.
There are no major economic reports due today, though key inflation and housing numbers are due as the week progresses.
Asian market were mixed in thin trading earlier, with Tokyo closing lower but Hong Kong finishing higher. Markets in Europe were closed for the Easter Monday holiday.
MONDAY: Hearing on Madoff fund freeze
TUESDAY: Retail sales; PPI; business inventories; Earnings from J&J, Goldman Sachs, Philips Electronics, Intel and CSX
WEDNESDAY: Weekly mortgage applications; NY Fed Empire State survey; CPI; industrial production; weekly crude inventories; NAHB housing index; Fed's beige book; Earnings from Abbott Labs
THURSDAY: Housing starts; weekly jobless claims: Philly Fed survey; Fed's Lockhart, Yellen speak; Earnings from JPMorgan, Harley-Davidson, Nokia, Southwest Air and Google
FRIDAY: CNBC's 20th Anniversary; consumer sentiment; Bernanke speaks; Earnings from Citigroup, GE and Mattel
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