NEW YORK (CNN/Money) -
Geopolitical worries dominated trading Monday, with U.S. stock markets tanking as investors reacted to threats of retribution against the United States and other nations after the killing of the founder of the Palestinian group Hamas.
The Nasdaq composite (down 30.57 to 1909.90, Charts) lost nearly 1.6 percent, the Dow Jones industrial average (down 121.85 to 10064.75, Charts) lost 1.2 percent and the Standard & Poor's 500 (down 14.38 to 1095.40, Charts) index lost 1.3 percent. All three had been lower in the early afternoon. Bonds rose and the dollar fell.
Market breadth was negative and volume was heavier than it has been in several weeks. A variety of sectors declined. (For a look at Monday’s movers, click here.)
"The international news is clearly upsetting the market," said John Davidson, president and CEO of PartnersRe Asset Management.
Monday, an Israeli air strike killed the founder of Hamas, a Palestinian Islamic fundamentalist organization that the U.S. State Department has called a terrorist group. Hamas immediately vowed revenge, and in the afternoon, an Islamist Web site published a statement saying al Qaeda would seek revenge against the U.S., which the group sees as partially responsible for the attack.
Other world issues weighing on stocks included a narrow re-election win for Taiwan’s president, which caused protests and calls for a recount amid allegations of election fraud, and news that a battle between Pakistani government troops and al Qaeda fighters that has been raging since late last week has failed to yield results.
"There's a period of unrest here that goes back two weeks," Davidson added. "It started with the weak monthly payrolls report, then was followed by the bombings in Madrid and the election of a new government [in Spain] that is not seen as friendly to the Bush Administration, and now what's happening in the Middle East."
The major indexes retreated for the last two weeks after being caught in a narrow trading range for the seven previous weeks as investors struggled to position themselves after the stock rally of 2003 and early 2004.
Since hitting its yearly high on January 26, the Nasdaq is down 11.3 percent, as of Monday’s close. Since hitting their 2004 highs on February 11, the Dow is down almost 6.3 percent and the S&P 500 is down around 5.4 percent.
Year-to-date, the declines for the indexes are smaller, with the Nasdaq down 4.6 percent, the Dow down 3.7 percent and the S&P 500 down 1.5 percent.
Tuesday’s market and beyond
Apart from the global turmoil, U.S. stock markets had problems of their own Monday because there was little in the way of corporate or economic news to focus on.
Although the latest inflation reports have been a bit higher than what economists expected, and the lack of much hiring continues to worry, the economic outlook long-term remains upbeat, said Michelle Clayman, chief investment officer at New Amsterdam Partners. The period of reporting first-quarter earnings, which will heat up in about two weeks, should be a positive one, she said.
But a period of consolidation is not necessarily over. "A lot of the Nasdaq stocks had a tremendous performance last year and may have gotten ahead of themselves in the early part of this year," Clayman added.
Davidson said that rather than looking to earnings, investors are more likely to look to the next monthly payrolls report, also due around the same time as the start of earnings.
Without any new economic data to focus on Tuesday, investors will likely continue reacting to the international news as well as any brokerage upgrades or downgrades.
Among the corporate news that could influence financial stocks early Tuesday is the earnings report from Goldman Sachs (GS: Research, Estimates). The bank probably earned $1.65 per share, up from $1.29 a year earlier, according to Reuters Research estimates.
In addition, after the close, handheld device maker PalmOne (PLMO: Research, Estimates) rallied 12 percent after it reported fiscal third-quarter earnings of a penny a share, excluding items, up from a loss of 85 cents a year earlier. Analysts surveyed by First Call were expecting a loss of 33 cents per share. The gains resulted from strong sales of its Palm personal digital assistants.
Monday's movers
The selling Monday was broad based, with 29 of the 30 Dow issues falling.
Among the biggest Dow decliners, Philip Morris (MO: down $1.71 to $52.96, Research, Estimates) lost 3.1 percent, Honeywell (HON: down $0.89 to $31.75, Research, Estimates) lost 2.7 percent, International Paper (IP: down $1.03 to $40.44, Research, Estimates) fell 2.5 percent and General Electric (GE: down $0.73 to $29.41, Research, Estimates) fell 2.4 percent.
In Taiwan, a narrow re-election win for President Chen Shui-bian inspired protests and calls for a recount amid allegations of election fraud. This, in addition to the Hamas killing, caused markets in Asia and Europe to fall.
Taiwanese stocks, including Taiwan Semiconductor (TSM: down $0.88 to $9.30, Research, Estimates), declined on the events happening in that country.
A rare standout gainer was US Oncology (USON: up $2.44 to $15.14, Research, Estimates), which runs cancer treatment centers. The firm agreed to let a private group buy the remainder of the company it doesn't already own for more than $1 billion. Shares soared just over 19 percent in active Nasdaq trade.
Market breadth was heavily negative. On both the New York Stock Exchange and the Nasdaq, declining stocks outnumbered advancers by more than three to one. Some 1.43 billion shares changed hands on the NYSE and 1.96 billion shares traded on the Nasdaq.
Treasury prices rose, pushing the 10-year note yield down to 3.71 percent from 3.77 percent late Friday. The dollar fell versus the euro and yen.
Among commodities markets, talk that OPEC might postpone an output cut planned for April sent NYMEX light sweet crude oil futures down 57 cents to settle at $37.05 a barrel. COMEX gold rallied $4.90 to settle at $417.60 an ounce.
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