Stocks slip in light trading as Toyota cuts profit outlook

NEW YORK -- Stocks began a holiday-shortened week with a moderate pullback Monday as investors recoiled at bleak news from Toyota Motor and drugstore operator Walgreen.

The two companies — both viewed as better-positioned than many of their peers — provided more evidence that even stronger companies are struggling as consumers cut back their spending.

Walgreen's profit fell 10% in its fiscal first quarter, due mostly to the costs of opening more than 200 stores, so the company said it will slow down its expansion. Toyota slashed its earnings forecast for a second time, warning that it now expects to post an operating loss for the fiscal year through March.

It would be the Japanese automaker's first such loss since it began reporting results in 1941, and underscores the challenges that remain for car companies. Toyota's American rivals, General Motors and Chrysler, received a $17.4 billion lifeline from the federal government last Friday to stave off bankruptcy.

Monday's gloomy corporate news highlighted how weak the consumer is, said Kim Caughey, equity research analyst at Fort Pitt Capital Group. That's a troubling prospect, she said, because it appears the U.S. economy cannot rely on consumer spending to pull it out of its downturn.

"Even though mortgage rates are coming down, we don't see the consumer running out and buying that house," Caughey said.

On Tuesday, the Commerce Department reports on last month's new-home sales, while the National Association of Realtors reports on existing home sales. Economists forecast that both will show declines.

Analysts pointed out, though, that trading volumes were very low Monday, and likely to stay that way throughout the week. So trading was choppy — the Dow fell by as many as 207 points before paring its losses — and the market's movements may not be indicative of its long-term direction.

"A truncated week is going to make it tough to generate any firm takeaways from trading," said Craig Peckham, equity trading strategist at Jefferies & Co. "I would expect to see sleepy volumes and a lot of people protecting positions going into year end."

Tax-loss selling — when investors sell securities at a loss to offset a capital gains tax liability — might also contribute to the market's weakness until the year's end, Fort Pitt's Caughey noted.

The Dow fell 59.34, or 0.69%, to 8,519.77, after briefly moving into positive territory early in the session, tumbling, and then recovering some of its losses. Monday's retreat was the fourth straight daily loss for the Dow.

Broader stock indicators also finished lower. The Standard & Poor's 500 index fell 16.25, or 1.83%, to 871.63, and the Nasdaq composite index fell 31.97, or 2.04%, to 1,532.35.

The Russell 2000 index of smaller companies fell 11.19, or 2.30%, to 475.07. Smaller companies tend to be more vulnerable to economic weakness than larger companies.

On the New York Stock Exchange, declining issues outnumbered advancers by more than 2 to 1. Consolidated volume came to 4.31 billion shares, down from 6.04 billion shares on Friday.

Toyota's U.S.-traded shares fell $3.50, or 5.4%, to $60.88.

Walgreen shares fell $1.10, or 4.2%, to $24.98.

Also weighing on stocks was Caterpillar, which said it will cut executive compensation in 2009 because of waning demand for mining and construction equipment. Caterpillar shares fell 91 cents, or 2.1%, to $41.78.

Wall Street has shown some signs of relative stability in the last few weeks. Since reaching multiyear lows on Nov. 20, the Dow is up 12.8% and the S&P 500 is up 15.8%.

Besides relief over the auto bailout, investor sentiment has also grown a bit more upbeat after the Federal Reserve last week cut the benchmark federal funds rate to a range of zero to 0.25% in an effort to boost borrowing and lending.

After doling out hundreds of billions of dollars in aid this year to prop up the troubled auto and financial sectors, companies are continuing to tap the government for assistance. Some of the country's largest property developers are seeking government help as the threat of default on commercial properties is growing, according to a Wall Street Journal report on Monday.

Another recipient of the government's assistance, American International Group, is selling its Hartford Steam Boiler unit to reinsurer Munich Re AG for $742 million as it works to shed assets to pay back a government loan. AIG received a $150 billion rescue package from the government last month to help it pull through the credit crisis.

AIG shares rose a penny to $1.61.

Light, sweet crude fell $2.45, or nearly 6%, to $39.91 a barrel on the New York Mercantile Exchange.

Government bonds finished lower, pushing up yields, even after the Treasury Department auctioned $38 billion of two-year notes — a record amount — at an all-time low yield of 0.922%. The yield on the benchmark 10-year Treasury note, which moves opposite its price, slipped to 2.17%. The yield on the three-month T-bill, considered one of the safest short-term investments, was up at 0.02%.

The dollar was mixed against other major currencies, while gold prices rose.

Overseas, Japan's Nikkei stock average rose 1.57%, while Hong Kong's Hang Seng index dropped 3.34%. Britain's FTSE 100 was down 1.88%, Germany's DAX index was down 1.23%, and France's CAC-40 was down 2.31%.