Stocks retreat slightly

Wall Street wobbles as investors watch oil bounce and fret about developments in tech and drugs.

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By Catherine Clifford, staff writer

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NEW YORK ( -- Stocks closed modestly lower Monday, as rising oil prices and concerns in the tech and drug sectors overpowered a better-than-expected earnings report from Bank of America.

The 30-stock Dow Jones industrial average (INDU) closed down less than 0.3% while the broader Standard & Poor's 500 (SPX) index finished the day down less than 0.1%. The tech-heavy Nasdaq composite (COMP) shed just more than 0.1%.

However, market breadth remained positive. On the New York Stock Exchange, advancers beat decliners by 2 to 1 on a volume of 1.20 billion. On the Nasdaq, advancers barely beat out decliners by 4 to 3 on volume of 1.82 billion shares.

The markets have been struggling since early July, when all three major indexes fell into bear territory. A bear market is defined as a drop of at least 20% off the most recent cyclical highs, which the indexes had hit in October.

While the bottom is never pretty, a bear market may mean that the market is preparing to rebound.

A day with little movement away from break-even may be a sign of a recovering market, said Harry Clark, founder and chief executive of Clark Capital Management Group.

"A big spike up won't hold, a big spike down won't hold, so this small plus and minus is a good thing," he said.

Small movements up and down around the historic closing price "is the process of building a bottom," said Clark. "The pull and tug between the bulls and bears" signals the market is working to recover from a steady decline, he said.

Energy prices: Oil prices rebounded strongly Monday, following the largest four-day slide in trading history. Investors focused on a breakdown of negotiations with Iran, as well as Tropical Storm Dolly, which is making its way into the Gulf of Mexico. Light, sweet crude oil for August delivery settled up $2.16 to $131.04 a barrel. (Full story).

The stock market is getting some support from oil hovering around the $130-a-barrel mark.

"Oil has found a level that makes more sense," said Hogan. "People have started to settle into the thought process that there could be some demand destruction if commodity prices stay at these levels and as the economy remains slow," he said.

Regular unleaded gas fell to $4.069 a gallon, down from $4.077 the previous day, according to a daily survey from motorist advocacy group AAA. In the past year, gas prices have risen more than 36%, causing Americans to cut back on travel and spend less in other areas. (Full story).

Tech sector: Web portal Yahoo announced a settlement with activist investor Carl Icahn over its lineup of candidates for board of directors. Yahoo (YHOO, Fortune 500) said the board is being expanded to 11 members, one of whom will be Icahn, along with two other added positions from Icahn's proposed slate of nine candidates. (Full story).

Shares of Yahoo slipped by more than 3% by the end of the trading day. "There is going to be news on Yahoo every day until they merge with Microsoft," said Hogan.

Yahoo was scheduled to report its earnings Tuesday.

After the bell on Monday, Apple (AAPL, Fortune 500) reported its third-quarter profit jumped 31%, beating Wall Street's expectations. The technology giant earned $1.07 billion, or $1.19 per share, 11 cents ahead of Wall Street's expectations, according to a Thomson Reuters survey of analysts. (Full story).

Shares of Apple ended the trading day up 0.6%, but guidance for the coming quarter hit the stock in after-hours trading, pushing the stock down about 4.5%.

Drugmakers: Shares of Merck (MRK, Fortune 500) and Schering-Plough Corp. (SGP, Fortune 500) fell after a study showed that their joint cholesterol-lowering drug Vytorin didn't lower the risk of heart valve problems or the need for surgery in a clinical trial.

The companies were scheduled to report results before the open, but delayed their releases until after the closing bell to give investors a chance to digest the report, released around midday.

Merck closed the regular hours trading day down 6% and Schering-Plough lost more than 11%. After the bell on Monday, both companies announced financial reports.

On Monday after the bell, drug developer Merck announced that its second-quarter profit beat analyst expectations. Excluding charges, the company reported earnings per share of 86 cents, which beat analyst's expectations of 83 cents per share. The company's stock fell more than 7% in after hours trading, on concerns over the Vytorin report. (Full story).

Several charges drove second-quarter profit for drug developer Schering-Plough down, but adjusted profit results for the quarter came in at 45 cents per share, which topped Wall Street expectations of 42 cents per share. The company's stock fell about 5% in after hours trading.

Bank of America: Bank of America (BAC, Fortune 500) reported better-than-expected earnings, even as it revealed that its profit plunged 41% in the most recent quarter. The Charlotte, N.C.-based company earned $3.41 billion, or 72 cents a share, during the second quarter. (Full story). Shares of Bank of America closed up nearly 4%.

Other banks have reported better-than-expected financial results recently. "Last week we saw a lot of news out of the financials that was not as bad as we expected," said Art Hogan, chief market strategist with Jefferies & Co.

Citigroup (C, Fortune 500) reported a $2.5 billion quarterly loss Friday, which was actually better than Wall Street's grimmer projections. On Thursday, Merrill Lynch (MER, Fortune 500) reported its fourth straight quarterly loss. JPMorgan Chase (JPM, Fortune 500) and Wells Fargo (WFC, Fortune 500) also reported lower profits, but both banks were ahead of Wall Street's expectations.

American Express: After the bell on Monday, American Express reported profits that missed expectations badly, citing an economic environment that "has weakened significantly." The company said it earned profits of $653 million, or 56 cents a share, for the quarter, down from the year-ago $1.06 billion, or 88 cents a share. Analysts surveyed by Thomson Financial were looking for an 82-cent profit. (Full story).

Quarterly reports on the horizon: The rest of the week brings a slew of quarterly financial reports.

"In the next few days there are lots of earnings and that will be a big impetus," said Clark. "People want to wait to see how earnings come out."

Wachovia (WB, Fortune 500) and Washington Mutual (WM, Fortune 500) are scheduled to report on Tuesday.

Other companies on tap include telecommunications giant AT&T (T, Fortune 500) and aircraft-maker Boeing (BA, Fortune 500) and results from the battered airline industry, including US Airways (LCC, Fortune 500), Jet Blue (JBLU) and UAL Corporation (UAUA, Fortune 500), the owner of United.

Leading indicators: The Conference Board announced Monday that its index decreased for the second consecutive month in June by 0.1%, in line with a consensus of economists surveyed by (Full story).

Other markets: In currency trading, the dollar lost ground against both the euro and the yen.

In the bond market, Treasury prices mostly increased, and the yield of the 10-year benchmark fell to 4.06%, from 4.08% late on Friday. Bond prices and yields move in opposite directions.

COMEX gold for August delivery settled $5.70 higher at $963.70 an ounce. To top of page

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