Recession and financial fears sent the Dow and S&P 500 on Monday to their worst closing levels since 1997 as the worst economic crisis since the Great Depression has now erased more than a decade's worth of gains on Wall Street.
The latest bleeding on Wall Street comes as enthusiasm over a new rescue of Citigroup was quickly drowned out by worries about when the economy will recover and what regulators will do to fix the shaky financial system.
Today’s Markets
The Dow Jones Industrial Average fell 250.89 points, or 3.41%, to 7114.78, the S&P 500 lost 26.72 points, or 3.47%, to 743.33 and the Nasdaq Composite dropped 53.51 points, or 3.71%, to 1387.72. The consumer-friendly FOX 50 sank 18.04 points, or 3.14%, to 556.37.
"Corporate earnings show no signs of turning around, the economy shows no signs of turning around and the consumer shows no signs of turning around. Absent those factors, what reason would stocks have for putting together a sustainable rally?" said Dan Greenhaus, equity analyst at Miller Tabak.
The markets have seen the exact opposite of a sustainable rally as the Dow has plummeted 1,150 points since Feb. 9, the day before the Treasury Department unveiled a financial rescue plan that many have said lacked details about how the government will help banks get rid of their toxic assets. Fears that the government will need to nationalize the most troubled banks have also slammed the markets.
“Without any idea about which course [regulators] are going to take, people are not stepping in. They are moving without a compass,” said Frank Davis, director of sales and trading at LEK Securities. “We’re going nowhere. We are slipping continuously until we get some clarity.”
The markets initially rallied Monday morning after The Wall Street Journal reported the government is in talks to stabilize Citigroup (C) by increasing its stake to up to 40%. While Citi and other financials rose sharply, tech and material stocks like U.S. Steel (X) plummeted to new depths by the time the dust settled.
“The market is just so skeptical of anything the government does given past performances,” said Ryan Detrick, equity analyst at Schaeffer’s Investment Research.
Back to 1997
The downturn on Wall Street hit another landmark on Monday as the S&P 500 set a new bear market closing low, ending at the lowest level since April 1997. The S&P 500 did not breach its November 21 intraday low, though it hovers just above it. The Dow, which last week suffered its worst weekly losses since October, ended at its lowest closing level since May 1997.
“We are in a real critical level right now,” NYSE trader Ted Weisberg of Seaport Securities told FOX Business. “It’s hard to believe that we are at these levels but here we are. Technically, if the market can’t hold these levels, we are going into uncharted territory.”
Market participants and observers said given the fact the Dow hasn't posted a meaningful rally since Feb. 6, it could be due for a short-term bounce in the coming days.
Nearly all 30 components of the Dow ended in negative territory, led by DuPont (DD) and aluminum titan Alcoa (AA). Citi and Bank of America (BAC), which had ended in the red in each of the prior six sessions, posted the index's biggest percentage gains but closed off their best levels.
The Nasdaq Composite, which has yet to breach its November lows, saw even heavier selling than the broader market as tech heavyweights like Apple (AAPL) and Dell (DELL) tumbled.
Without any major economic or earnings reports on the agenda, Wall Street’s focus on Monday remained squarely on the tumultuous financial sector and the government’s efforts to fix it.
Financials in Focus
Citi ended sharply higher as the Journal report indicates the government will avoid fully nationalizing the embattled bank by converting preferred shares it currently owns to common stock. The move would be the third rescue for Citi, which tumbled to 18-year lows last week, and would significantly dilute current common stock.
The potential Citigroup rescue would be aimed at allowing the bank’s tangible common equity, a measure of bank health, to meet more stringent requirements, the Journal reported. Citi execs hope the government will increase its stake to 25%, not 40%, the newspaper reported.
(Click here to read "Government Ups the Ante on Citigroup")
The Treasury Department wouldn’t confirm the talks but regulators released a statement Monday saying the U.S. “stands firmly behind the banking system during this period of financial strain." Regulators also said the new capital assistance program will begin on Wednesday and that new and previous capital injections can be converted to common equity.
Commodities were also hurt by the economic fears as crude oil gave back an early rally by settling at $38.44 per barrel, down $1.59 on the day. Gold prices edged away from all-time highs, falling $7.20 per ounce to end at $995.00.
Corporate Movers
General Motors (GM) and privately held Chrysler could receive up to $40 billion in bankruptcy financing, the Journal reported. The Treasury Department is reportedly scrambling to line up the largest bankruptcy loan ever in case the two auto makers need to file for Chapter 11 restructuring.
Ford (F) surged after the auto maker reached a tentative deal with the United Auto Workers union on how to fund a trust to pay retiree health care expenses.
Bank of America (BAC) is “obstructing and interfering” with New York Attorney General Andrew Cuomo’s probe into $4 billion of Merrill Lynch bonuses, Cuomo alleged in new court documents. Cuomo filed a motion to compel former Merrill CEO John Thain to discuss the bonuses.
Campbell Soup (CPB) beat the Street with a profit of 65 cents per share and the world’s largest soup maker sees its 2009 earnings at the high end of its previous guidance.
Philadelphia Newspapers LLC, the publisher of The Philadelphia Inquirer and Daily News , filed for Chapter 11 bankruptcy protection on Sunday, citing a “rare trifecta” of falling revenue, a steep recession and its ill-equipped debt structure. Journal Register Co., which publishes 20 daily papers, also filed for Chapter 11 over the weekend.
U.S. Airways (LCC) is reinstating its complimentary non-alcoholic beverage service starting March 1 but the airline said it still sees generating up to $500 million in 2009 from a la carte items.
Global Markets
European markets gave back early gains to end solidly in the red. TheDow Jones Euro Stoxx 50, which tracks the 50 largest companies in Europe, fell 1%, its sixth straight decline, to 2038.90. London's FTSE 100 fell 0.99% to 3850.73 and Germany's DAX lost 1.95% to 3936.45.
In Asia, Tokyo's Nikkei 225 closed down 0.54% to 7376.16 while Hong Kong's Hang Seng jumped 3.75% to 13175.10. Australia's ASX 200 fell 1.5% to 3351.20.
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