MarketView for September 10

Summary

All three major equity indexes were lower on Monday as investors locked in gains from the recent rally ahead of possible policy action from the Federal Reserve later this week, while weakness in Intel weighed on the Nasdaq. After the S&P 500 index closed at highs last week not seen in nearly five years, there was some desire on the part of investors to take money off the table prior to the Federal Reserve's decision on Thursday.

Shares of Intel lost nearly 4 percent after several brokerages cut price targets on the chipmaker. At the same time, Apple fell more than 2 percent as the market's weakness was felt most in tech shares.

To make matters ever more interesting, investors are on guard against the unknown outcomes of several events this week, including a ruling by Germany's constitutional court on Wednesday on the legality of the euro zone's permanent financial rescue fund and the Fed decision on Thursday. Expectations for more stimuli from central banks in the United States and Europe have underpinned markets in recent weeks.

Nonetheless, it still appears that the Federal Reserve will undertake a third round of bond purchases this week. Friday's weak report on jobs growth for August was likely to be the inducement required for the Fed to implement some form of a new QE3 bond buying program with the intention of adding additional liquidity to the economy.

Investors sold some big-cap tech names that have done well all year. Worse-than-expected data on imports from China added to selling in the sector. Chinese import data showed a fall of 2.6 percent on the year in August, short of expectations for a 3.5 percent rise. Exports grew 2.7 percent.

AIG shed 2 percent to $33.30 after the U.S. Treasury Department said it will sell most of its stake in the insurer, making the government a minority investor for the first time since it rescued the company in the depths of the financial crisis four years ago.

Plains Exploration & Production Co said it planned to acquire BP's stake in some deep water Gulf of Mexico wells for $5.55 billion to increase its oil production. BP edged up 0.26 percent to $42.04 and Plains Exploration fell 10.5 percent to $36.09.

Titan Machinery ended the day down 23 percent to close at $19.41 after the farm equipment retailer cut its full-year profit forecast after it reported a lower-than-expected quarterly profit as the worst drought in 56 years in the U.S. Midwest hit prices of tractors and combines.

Volume was light, with about 5.56 billion shares changing hands on the three equity exchanges, a number that was well below last year's daily average of 7.84 billion shares.

Consumer Credit Tumbles

According to a report released on Monday by the Federal Reserve, consumer credit decreased by $3.28 billion in July, the first decline in nearly a year. However, in a more positive sign, the Fed revised substantially higher its estimate for credit growth in June.

The data follows a report on Friday that showed U.S. jobs growth slowed sharply in August, setting the stage for the Federal Reserve to pump additional money into the sluggish economy as soon as this week.

Credit has been expanding almost continuously since mid-2010 as the country recovered from the 2007-2009 recession. The decline in July was the first drop since August of last year. In July, revolving credit, which includes credit cards, shrank by $4.82 billion.

Credit data can be tricky to interpret because cutting back on debt is not always a sign of pessimism. People might be relying less on credit card debt to buy things because they are earning more money.

Nonetheless, the trend in credit card debt is looking increasingly worrisome. Revolving credit has now declined in three of four months through July. That had not happened since early 2011, and underscores the wobbliness seen in the economy in recent months as hiring has slowed and growth in factory activity has declined.

Non-revolving credit increased by $1.55 billion, down from an increase of $15.07 billion in June.

The Fed does not release seasonally adjusted data on student loans, which have been a driver on non-revolving credit since the recession. However, lending to students by the government rose 24.8 percent in July from a year earlier, down from a 30 percent increase during the 12 months through June, according to the Fed data.

Consumer credit flows -- a relatively new data series that the Fed says is more sensitive to economic trends -- also cooled. The flow of consumer credit fell at an annual rate of $39.3 billion in July.