Banks Pull Stocks Lower

How have the global markets responded to the death of North Korea’s Kim Jong Il? Dow Jones Newswires Markets Reporter Brendan Conway weighs in.

Stocks fell Monday after European Central Bank President Mario Draghi made cautious comments on the state of Europe’s economy and as bank stocks sagged in expectation of tighter capital standards.

The Dow Jones Industrial Average shed 34 points, or 0.3%, to 11833 in afternoon trading, after posting a slim advance early in the day. The Standard & Poor’s 500-stock index shed six points, or 0.5%, to 1213, and the Nasdaq Composite lost nine points, or 0.4%, to 2546.

Trading volume was light as many investors were closing their books for the year. Just less than 1.7 billion shares had changed hands in New York Stock Exchange composite volume as of 1 p.m. Eastern time. Average daily volume this year has been about 4.3 billion shares.

Stocks lost their morning rally after the ECB’s Mr. Draghi said the region’s economic outlook was subject to “high uncertainty” and that substantial risks remained. He added that the ECB was trying “to do its best” to avoid a credit crunch stemming from the lack of funding banks are facing in the euro zone.

Meanwhile, bank stocks were the weakest performers after The Wall Street Journal reported that the Federal Reserve is set to embrace rules by regulators in Basel, Switzerland, requiring major financial institutions to hold extra capital. J.P. Morgan Chase lost 3.2%, and Bank of America shed 3.1% to lead the blue-chip Dow’s decliners.

“There’s a tremendous amount of uncertainty and fear,” said Stephen Hammers, portfolio manager of the Compass EMP Alternative Strategies fund. “Fear has taken over, and it’s increased market volatility. Sovereign governments have gotten themselves into way too much trouble.”

European markets finished mixed. The Stoxx Europe 600 finished up by less than 0.1%. Germany’s DAX lost 0.5%, but France’s CAC 40 clung to a gain of 0.1%.

Last week, the blue-chip Dow shed 318 points, or 2.6%, after credit-rating firms took a negative view of Europe’s most recent crisis-contagion efforts and the U.S. Federal Reserve refrained from announcing significant new measures to bolster financial markets.

“Markets have lost confidence in the policy makers. They need to do something big to regain confidence,” said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management. “If they can find a definitive agreement to lend the IMF €200 billion (about $260 billion), that could at least make people a little less skeptical as to their ability to handle their problems.”

Caterpillar was one of Monday’s strongest blue-chip stocks, rising 0.7% after the machinery company reported sales of construction and mining machinery rose 30% in the three months to the end of November, higlighted by strong growth in North America.

Asian exchanges sank amid fears of political instability following the death of North Korean leader Kim Jong Il, with South Korea’s Kospi Composite shedding 3.4% and Japan’s Nikkei Stock Average losing 1.3%.

“It’s interesting to look at the red coming out of Asia and then see green in Europe and the U.S. The Asian markets saw what I consider a justifiable reaction to a destabilizing event,” said John De Clue, senior vice president at U.S. Bank Wealth Management. “As difficult a country as it is, a strong North Korea is better than a weak one, because a weak one implies uncertainty of perhaps extreme proportions.”

Associated Press

Gold futures were down 0.1% at $1,596 an ounce, while crude-oil futures rose 0.4% to $93.94 a barrel. The dollar edged higher against the euro and the yen.

The economic calendar was light. A reading on home builder confidence in December rose to 21 from a downwardly revised 19 last month, reaching the highest level since May 2010.

In corporate news, AT&T’s talks on asset sales to help win regulatory approval for its acquisition of T-Mobile USA have cooled, according to a report in The Wall Street Journal, meaning AT&T may have to abandon the $39 billion deal. AT&T shares lost 0.2%.

Winn-Dixie Stores surged 71%. Grocery-store operator BI-LO agreed to take the grocery chain private in a deal valuing the company at about $560 million.

Social-gaming company Zynga’s stock fell 4.8% after closing down 5% in its first day of trading. The declines were viewed as a sign the appetite for new issues of high-growth technology companies could be waning.

Saudi Arabia’s Prince Alwaleed bin Talal made a $300 million investment in Twitter, or about 3.6% of analysts’ October valuation of the unlisted social-media site at $8.4 billion.

Alexza Pharmaceuticals gained 7.6%. The drug company said it had retained adviser Lazard to help it explore strategic options after handing all of its employees 60-day layoff notices to conserve cash.

View the original article here