Stocks pause from recent surge, hurt by declines in energy, material stocks

Energy, material stocks lead market decline

NEW YORK — More dealmaking and a favorable economic forecast weren’t enough to carry stocks higher Monday as markets around the globe cooled from a recent surge.

The Dow Jones industrials and the Standard & Poor’s 500 index lost about 0.8 percent in early trading. The dollar rose, igniting a sharp sell-off in commodities like oil and gold, which weighed on energy and material stocks.

The declines came even as a private sector group’s forecast of economic activity rose for the fifth straight month. The Conference Board’s index of leading economic indicators increased 0.6 percent in August, just short of the 0.7 percent increase economists expected. The index, which is meant to project economic activity in the next three to six months, climbed 0.9 percent in July, revised up from 0.6 percent.

News of Dell Inc.’s plans to buy information technology company Perot Systems Corp. for about $3.9 billion also did little to invigorate investors who have taken stocks up more than 50 percent since early March.

Analysts say breaks in the rally are perfectly healthy.

“This is what should happen, needs to happen, is going to happen along the way but it doesn’t mean we’re headed down significantly from here,” said Jordan Smyth, managing director at Edgemoor Investment Advisors in Bethesda, Md.

The benchmark Standard & Poor’s 500 index tacked on a 2.5 percent gain last week, bringing its total rise since March to 58 percent, after Federal Reserve Chairman Ben Bernanke declared the U.S. recession was “likely over” from a technical standpoint.

Investors are now waiting to see what the rest of the Fed has to say this week during its two-day rate-setting meeting, which begins Tuesday.

In early trading, the Dow Jones industrial average fell 79.73, or 0.8 percent, to 9,740.47. The Standard & Poor’s 500 index lost 9.23, or 0.9 percent, to 1,059.07, while the Nasdaq composite index fell 8.84, or 0.4 percent, to 2,124.02.

In other trading, the Russell 2000 index of smaller companies fell 5.86, or 1.0 percent, to 612.02.

More than four stocks fell for every one that rose on the New York Stock Exchange, where volume came to 280.2 million shares, down from 669.4 million at the same time on Friday.

The dollar rose against other major currencies, sending prices for gold, oil and other commodities tumbling. Commodities are priced in dollars, so a stronger greenback makes them less appealing for foreign investors.

Oil prices dropped $2.82 to $69.22 a barrel on the New York Mercantile Exchange, driving energy stocks lower. Chesapeake Energy Corp. lost 92 cents, or 3.3 percent, to $26.93, while Halliburton Co. fell 89 cents, or 3.2 percent, to $27.26.

Bond prices rose, benefiting from the sell-off in stocks. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.43 percent from 3.46 percent late Friday.

Shares of Perot Systems shot up nearly 66 percent, or $11.70, to $29.61 after Dell offered to buy the company for $30 a share in cash — a 68 percent premium over the stock’s Friday closing price. Dell shares slid 73 cents, or 4.4 percent, to $15.96.

With major stock indexes up more than 50 percent over the past six months, including the Dow Jones industrial average, which is less than 300 points shy of the 10,000 mark, it’s widely believed that the market is ripe for a pullback.

Though economic data is expected to continue to improve, there are other worries plaguing the market, such as the potential threat of inflation.

The Federal Reserve is expected this week to keep its key interest rate at a record low of near zero, but the market will be looking for any indication of when the Fed plans to actually raise rates, a tactic it would use to ward off inflation.

The Fed has kept interest rates low to help stimulate the economy, but if the central bank signals inflation is becoming a concern, that could spook investors. Up until now, the Fed has insisted that inflation, which would further erode the value of the dollar and eat into Treasury yields, is largely in check.

Investors will also get reports this week on new and existing home sales, as well as durable goods orders.

Overseas, Hong Kong’s Hang Seng index lost 0.7 percent. A number of other Asian markets, including Japan’s, were closed for holidays. In afternoon trading, Britain’s FTSE 100 was down 0.9 percent, Germany’s DAX index dropped 1.2 percent, and France’s CAC-40 fell 0.9 percent.