US stocks declined on Monday, led lower by financial shares after UBS cut its rating of three big credit card providers, including American Express, citing expectations for a consumer-led recession. The downgrades, combined with a report showing slower-than-expected factory orders, cast doubt over market optimism that last week drove Wall Street's biggest percentage gain in five years.
American Express was the top drag on the Dow after UBS cut the shares to "sell," saying its outlook for a recession in the first half of 2008 would lead to higher levels of unemployment. The brokerage also cut its ratings on Capital One Financial Corp and Discover Financial Services.
"Credit issues are going to be an ongoing problem for the market," said Warren Simpson, managing director at Stephens Capital Management in Little Rock, Arkansas. "I absolutely think the consumer is going to be affected. That's why we're trying to get the stimulus plan through as fast as possible." The Senate will debate this week a House-passed $146 billion package of tax rebates and business incentives to stimulate the economy and avert a recession.
The Dow Jones industrial average was down 91.20 points, or 0.72 percent, at 12,651.99. The Standard & Poor's 500 Index was down 12.02 points, or 0.86 percent, at 1,383.40. The Nasdaq Composite Index was down 23.06 points, or 0.96 percent, at 2,390.30. American Express shares were down 3.4 percent to $47.91. Capital One stock slumped 6.4 percent to $53.30. Discover shares dropped 8.6 percent to $16.41.
In the factory orders report, the rise was even more modest when transportation was stripped out, adding to unease about the economy's outlook. Some big manufacturers' shares fell, including Caterpillar Inc, off 1.1 percent to $70.99.
Brokerages cut shares of Wells Fargo & Co, the No 2 US mortgage lender, whose stock fell 6 percent to $31.64, and Wachovia Corp, the fourth-largest US bank, whose stock was down 7.7 percent at $35.77.
Traders said the New York Giants' Super Bowl win contributed to lighter volume, with talk about the football game dominating trading floors and some traders opting to take the day off. Following software maker Microsoft Corp's $44 billion bid for Yahoo Inc, the Internet media company would consider a business alliance with Web search company Google Inc as one way to rebuff the take-over proposal, a source familiar with Yahoo's strategy said on Sunday. Shares of Google fell 3.2 percent to $499.25 and were the biggest drag on the Nasdaq. Yahoo stock was up 3.5 percent to $29.35.