Collapsing commodities like crude oil dealt Wall Street another setback Monday, sending the Dow to its worst day in two months and shoving the S&P 500 back into the red year-to-date.
Today’s Markets
The Dow Jones Industrial Average slid 200.72 points, or 2.35%, to 8339.01, the Standard & Poor's 500 sank 28.19 points, or 3.06%, to 893.04 and the Nasdaq Composite lost 61.28 points, or 3.35%, to 1766.19. The consumer-friendly FOX 50 fell 16.89 points, or 2.49%, to 662.54.
With an absence of new economic and earnings reports, Wall Street continues to be dominated by the commodity markets, where crude oil settled at three-week lows and copper suffered its worst one-day dive since February. Energy and basic material stocks plunged in response, dragging the rest of the markets down with them.
“We’ve become remarkably more defensive and are continuing to track what’s going on in commodities,” said Art Hogan, chief market strategist at Jefferies & Co. “This is very reminiscent of the beginning of last week. Hopefully this week plays out in the same fashion where the worst of it gets done in the beginning of the week.”
The ugly opening act to the week comes after the markets ended mixed in each of their last three sessions amid uncertainty about whether or not the stock markets are too bullish. In fact, the Dow's four-week win streak came to an end on Friday, erasing a slice of the index's 2,000-point surge from the March lows.
“There’s a growing sense that maybe the market has gone a little too far, too fast. Maybe some of the optimism is getting a little ahead of reality,” said Michael James, senior equity trader at Wedbush Morgan Securities. “The market has been a little wobbly. Clearly the burden of proof is on the bulls to demonstrate that the buyers are still around.”
The Dow ended at its worst levels of the day, with almost all 30 components closing in the red, led by aluminum company Alcoa (AA) and Bank of America (BAC). Defensive stocks like Verizon (VZ) and Wal-Mart (WMT) saw modest buying.
The Nasdaq Composite plunged much further than the Dow, suffering its worst percentage drop since April 20 as tech stocks like Yahoo! (YHOO) and Research in Motion (RIMM) fell sharply.
Traders were also fretting the fact that the broad S&P 500 pierced its 200-day moving average, an important support level. The index also ended in the red for 2009 for the first time since late May.
“It is a little disturbing. From a trader’s perspective, this gets a little scary. We don’t see support for a little while lower from here,” NYSE trader Ben Willis of VDM Institutional Brokerage told FOX Business.
Economic concerns manifested again on Monday as crude oil settled at its lowest level since June 3 and European markets were washed in a sea of red. The lower oil prices, while a welcome sign for cash-strapped consumers, sent shares of energy stocks like ExxonMobil (XOM) and Hess (HES) tumbling. The sector closed 5% lower.
Crude, which slumped last week for the first time in five weeks, came under heavy pressure as the dollar strengthened and the World Bank lowered its economic forecasts, saying the global economy will contract by nearly 3% this year and grow just 2% next year. Crude settled at $66.93 a barrel after sinking $2.62, or 3.77% -- its worst one-day percentage loss since May 15.
It wasn’t just oil as copper plunged 5.3%, dragging down mining and metal stocks like Freeport McMoran (FCX) and U.S. Steel (X).
While Monday’s schedule was very light, traders are keeping an eye on a pair of multi-day events later this week that are likely to move the markets.
First, the Federal Reserve is set to begin a two-day meeting on Tuesday where the central bank is widely expected to keep interest rates at record lows but could signal an exit strategy.
Also, the bond markets will return to the spotlight as the Treasury Department plans to sell a record $104 billion in notes this week, including $40 billion of two-year Treasuries on Tuesday. If the auctions fail to generate healthy demand, fears about inflation and higher rates could return to the equity markets.
Corporate Movers
Apple (AAPL) CEO Steve Jobs had a liver transplant while on medical leave but is still expected to return to the tech giant later this month, possibly working part-time initially, The Wall Street Journal reported. Separately, Apple said it sold more than one million iPhone 3GS models in the first five days since its release, exceeding the Street’s expectations.
Goldman Sachs (GS) is on track to enjoy its most profitable year ever thanks to a lack of competition and soaring revenue from trading foreign currency, bonds and fixed-income products, according to the Guardian , a U.K. paper. The results could trigger the biggest bonus payments in the bank’s 140-year history, the paper reported. However, a Goldman source downplayed the report to FBN, saying it’s too early to predict profits and compensation.
Merck (MRK) and Schering-Plough (SGP) said U.S. regulators have requested more information on the drug makers' proposed merger. However, the companies said their transaction is still on track to close in the fourth quarter.
Walgreen (WAG) said its third-quarter net income tumbled by a worse-than-expected 8.7% to 53 cents per share. The drug store’s sales grew by an in-line 8%.
Eastman Kodak (EK) announced it will stop making its Kodachrome color film this year as demand has dropped off amid new technology. The iconic film became the world’s first successful commercial color film in 1935.
Global Markets
European markets led the way lower as London's FTSE 100 fell 2.57% to 4234.05, France's CAC 40 sank 3.04% to 3123.25 and Germany's DAX tumbled 3.02% to 4693.40.
In Asia, Japan's Nikkei 225 gained 0.41% to 9826.27, Hong Kong's Hang Seng advanced 0.77% to 18059.55 and China's Shanghai Composite rose 0.55% to 2896.30.
