Fueled by a selloff in the financial sector, the Dow took its biggest hit in three weeks on Monday, throwing cold water on a hot streak that had sent the Dow climbing 2,000 points in just two months.
Today’s Markets
The Dow Jones Industrial Average fell 155.88 points, or 1.82%, to 8418.77, the S&P 500 slipped 19.99 points, or 2.15%, to 909.24 and the Nasdaq Composite lost 7.76 points, or 0.45%, to 1731.24. The consumer-friendly FOX 50 fell 10.78 points, or 1.59%, to 667.96.
While the selloff was significant, traders seemed unfazed by the losses, saying the markets were overdue for a breather, especially considering the economic hurdles that remain.
“We very much anticipated a pullback from the run we’ve seen,” NYSE trader Ben Willis of VDM Institutional Brokerage told FOX Business. “It’s not a worry. This is all perfectly natural. It’s more healthy to backfill like this.”
With little to no economic or earnings news to rally around, the focus on Monday centered on a 6% dive for the financial sector. Banks took a hit after a slew of regional banks like US Bancorp (USB) unveiled plans to raise cash by selling common stock, a move that is highly dilutive to current shareholders.
“From this point on, I think the market really needs to see something concrete out of the economy and the corporate world for it to sustain the current momentum,” NSYE trader Ted Weisberg of Seaport Securities told FOX Business. “It’s unrealistic to expect the market to continue on a percentage basis moving up as fast as we’ve seen the last two months.”
Over the past two months, the Dow has rallied 30% from its 12-year low. Last week stocks rallied again, the Dow's eighth up week of the past nine, as Wall Street cheered increased financial clarity via the government's bank stress tests and a better-than-expected jobs report.
But that enthusiasm ran out of steam Monday as the Dow took its biggest tumble since April 20. The losses were led by Bank of America (BAC), American Express (AXP) and General Motors (GM), which reiterated it may need to file for bankruptcy protection. On the upside, tech bellwethers IBM (IBM) and Hewlett-Packard (INTC) rose 1% a piece.
The Nasdaq Composite did not see nearly the same level of selling, ending with modest losses after trading in the green for half the session. Several large-cap tech stocks like Oracle (ORCL) and Yahoo! (YHOO) posted solid gains.
Banks gave Wall Street a reason to sell on Monday as four regional banks announced plans to raise a total of $6 billion of fresh capital to either repay TARP funds or bolster their balance sheets. While the markets have applauded the fact that banks have been able to tap the private markets for cash rather than the government, the fundraising efforts as highly dilutive to current shareholders.
BB&T (BBT), which serves the Mid-Atlantic and Southeast, said it will sell $1.5 billion of common stock and slash its dividend by 68% to repay its TARP cash. Similarly, credit card giant Capital One Financial (COF) said it will sell 56 million new shares, Midwest regional bank US Bancorp (USB) announced plans to sell $2.5 billion in stock and Ohio-based KeyCorp (KEY) will raise $750 million.
Meanwhile, energy stocks like Valero (VLO) fell sharply as crude oil's three-day win streak came to an end. But crude settled well off its worst levels of the day, ending down 13 cents a barrel, or 0.22%, at $58.50.
Corporate Movers
General Motors (GM) CEO Fritz Henderson said it is “more probable” the struggling auto maker will need to file for bankruptcy, though it may still avoid it. Henderson also said the company has no plans to modify its bond exchange offer even though it has received tepid support. According to The Wall Street Journal , GM hired executive-search firm Spencer Stuart to help find replacements for at least half of its 12 directors.
Bank of America (BAC) CEO Ken Lewis said he hopes to repay TARP in “months, not years,” according to Dow Jones Newswires. He said “business is really good” at Merrill Lynch but declined to give a time frame for assuming the brokerage’s debt.
HSBC (HBC) said its first-quarter results were “encouraging” and it remains “well-positioned” for the “highly uncertain environment.” While its profits tumbled from a year ago, the U.K. lender said they were “significantly higher” than the fourth quarter.
Target (TGT) is facing a board challenge from hedge-fund Bill Ackman, who is holding a meeting Monday to introduce a slate of five dissident directions that includes himself, the Journal reported.
American International Group (AIG) sees a long restructuring process after its near collapse last year, the Journal reported, citing an internal memo. The bailed-out insurer recently under took an initiative called “Project Destiny” that involved a 45-day review of its businesses, the paper reported.
Cablevision (CVC) said contrary to recent speculation, it is not considering selling MSG, any of MSG’s businesses or any other Cablevision business at this time. The cable company last week said it is exploring spinning off MSG to Cablevision holders.
Global Markets
In Europe, London's FTSE 100 tumbled 0.6% to 4435.50, France's CAC 40 fell 1.93% to 3248.67 and Germany's DAX sank 0.96% to 4866.91.
In Asia, Japan's Nikkei 225 gained 0.2% to 9451.98 while Hong Kong's Hang Seng slipped 1.74% to 17087.95. China's Shanghai Composite fell 1.75% to 2579.75.
