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Dow Falls 100 Points; Banks, Industrials Slide

Published: Monday, 30 Aug 2010 | 3:25 PM ET

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By: Abby Schultz and JeeYeon Park

Stocks continued to selloff Monday amid light volume as confidence about the economy weakened and investors remained cautious ahead of several key reports coming up this week.

Major U.S. Indexes

.DJIA

.NCOMP

.SPX

The Dow Jones Industrial Average was down almost 100 points, led by Bank of America [BAC Loading... () ], Home Depot [HD Loading... () ], and Intel [INTC Loading... () ]. Hewlett-Packard [HPQ Loading... () ] was the only stock trading higher among the blue-chip index.

The S&P 500 and Nasdaq were down more than 1 percent each. The CBOE volatility index, widely considered the best gauge of fear in the market, rose more than 7 percent, above 26. All key S&P sectors were lower, led by financials, consumer discretionary stocks and industrials.

The Dow, S&P 500 and Nasdaq ended last week with a rally after the Federal Reserve signaled it would take measures to support the recovery, if necessary. Still, the major indexes are on track to post a loss in August for the first time since 2005.

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The S&P 500 is now trading at an earnings-per-share estimate of only 12.5 times the consensus estimate for 2010 earnings, and 10.9 times the consensus estimate for 2011, accrording to Jeff Saut, chief market strategist at Raymond James.

"Finally, if the forward earnings estimates are correct, the SPX is trading at a P/E ratio not seen in a long time," Saut wrote in a note to clients. "For these reasons I just do not see a whole lot of downside."

In an interview, Saut said a key problem is the retail investor has withdrawn from the market.

"Just like we had an optimism bubble 10 years ago, we have a pessimism bubble today," Saut said.

Bank stocks were weak across-the-board, extending a trend evident all month, reflecting deep investor concerns with the sluggish US economy.

Bank giants including Citigroup [C Loading... () ], Wells Fargo [WFC Loading... () ] and Bank of America [BAC Loading... () ] fell almost 2 percent each.

Hewlett Packard's shares were up more than 2 percent after the company's board announced plans to buy back $3 billion in stock in the fourth quarter. Also, S&P Equity raised its price target on HP to $49 from $48. HP is the latest among 41 companies to announce stock buybacks, a move that usually inspires wider investor confidence in the stock market.

The computer maker is also in the middle of bidding war with Dell [DELL Loading... () ] for 3Par [PAR Loading... () ], a utility storage provider. On Friday, HP raised its bid to $2 billion or $30 a share. Dell's latest bid was $27 a share.

Genzyme shares [GENZ Loading... () ] rose more than 3 percent after the pharmaceutical company's board unanimously rejected an $18.5 billion offer that translated into $69 per share from Sanofi-Aventis [SNY Loading... () ]. S&P Equity downgraded its rating on Genzyme to "hold" from "buy."

Elsewhere, Intel shares [INTC Loading... () ] were lower after news that the tech giant will buy the wireless unit of German chipmaker Infineon [IFNNF Loading... () ] for $1.4 billion in cash. The unit will be operated as a stand-alone business. In addition, at least six brokerages cut their price targets on Intel.

3M shares [MMM Loading... () ] were down after the conglomerate said it would buy biometric identification systems company Cogent [COGT Loading... () ] in a deal valued at more than $900 million. Cogent shares soared more than 20 percent following the news.

BHP Billiton [BHP Loading... () ] said it would consider divesting several units of Potash [POT Loading... () ] if it is successful at acquiring the company.

And Cisco shares [CSCO Loading... () ] were lower following rumors that the Internet equipment maker has made an offer to acquire Skype before the firm completes their IPO process, according to TechCrunch.

Most airline stocks were higher following news that the Justice Department approved the merger between UAL's [UAL Loading... () ] United Airlines and Continental Airlines [CAL Loading... () ] after the airlines agreed to provide takeoff and landing slots at New Jersey's Newark Liberty Airport to Southwest Airlines [LUV Loading... () ]. Shareholders are expected to approve the merger in September.

Walt Disney [DIS Loading... () ] and Time Warner [TWC Loading... () ] are making progress in a dispute that could result in Disney's ABC-TV and ESPN channels being blacked out on Time Warner cable systems, though the two sides are now expected to reach a deal without such an occurrence.

Also in the entertainment arena, the battle to dominate distribution of movies and TV on the Internet is heating up as Google’s [GOOG Loading... () ] YouTube negotiates with major film studios in Hollywood to offer a pay-per-view service this year.

The Justice Department, meanwhile, has some concerns with Comcast's [CMCSA Loading... () ] bid to buy control of General Electric's [GE Loading... () ] NBC Universal division over how the merger may affect the Internet TV market, according to the Wall Street Journal. (GE is the parent company of CNBC.)

Meanwhile, BlackBerry maker Research In Motion [RIMM Loading... () ] will give India access to secure data from Sept. 1, according to government sources.

In the day's economic news, the Commerce Department said consumer spending rose 0.4 percent after being flat in June. The results were better than the 0.3 percent rise estimated by analysts polled by Reuters. Personal incomes rose 0.2 percent in July.

The labor market will be in heavy focus this week with the big monthly government jobs data scheduled for Friday.

In addition, the Institute for Supply Management releases its monthly manufacturing survey Wednesday, which has an employment component to it. Payroll company ADP also releases its data on private jobs growth Wednesday.

And the Labor Department reports its weekly report on jobless claims Thursday.

On Tap This Week:
TUESDAY: S&P/Case-Shiller home price index; consumer confidence index, FOMC minutes
WEDNESDAY: August auto sales; weekly mortgage applications; Challenger job-cut report; ADP employment report; ISM mfg index; construction spending; weekly oil inventories; Fed's Fisher speaks; Apple event
THURSDAY: August chain store sales; weekly jobless claims; productivity and costs; factory orders; pending home sales
FRIDAY: August jobs report; Fed's Lockhart speaks; ISM services index

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