Stocks fall as automaker plans are rejected
The stock-market rubber band snapped back Monday, stinging investors who had been enjoying a powerful rally in recent weeks, as the threat of carmaker bankruptcies underscored the economy’s problems.
The Dow Jones industrial average skidded more than 250 points and foreign markets fell.
The sell-off, led by financial stocks, wasn’t exactly a surprise; traders had been bracing for one almost since the recent rally began. From March 9 to late last week, the Dow surged 21% and the Standard & Poor’s 500 index gained 23% -- representing for each index a typical two-year gain, or more, in less than three weeks.
“You’ve got a market that was very stretched out in the short term,” said Al Goldman, chief market strategist at Wachovia Securities. “We were cruising for a bruising whether we had good news, bad news or no news.”
Still, some investors fretted that Monday’s decline could signal an end to the recent rally as the market approached what could be a difficult period.
The Labor Department’s monthly unemployment report Friday is expected to show that the country shed 659,000 jobs in March -- roughly in line with February’s drop but still a huge number that would mean increased pressure on the economy.
Next week, companies will begin to release what are likely to be dreary first-quarter earnings reports that could weigh heavily on investor psyches.
The bottom line, many analysts said, is that an end to the recession isn’t coming soon enough to warrant a sustained stock rally now.
“At the end of the day, stock prices are determined by earnings,” said Dan Greenhaus, market analyst at Miller Tabak & Co. in New York. “And as long as earnings continue to come in less than expected, continue to decline, stock prices are going to have a hard time going up.”
The Dow fell 254.16 points, or 3.3%, to 7,522.02. It was down nearly 338 points an hour before the closing bell.
Monday marked only the second time that the Dow fell two days in a row since the March rally began. The index gave up 148 points Friday.
The S&P; 500 skidded 28.41 points, or 3.5%, on Monday to 787.53. The Nasdaq composite index slumped 43.40 points, or 2.8%, to 1,501.80.
Foreign stocks tumbled, with shares dropping 3.5% in Britain, 5.1% in Germany and 4.7% in Hong Kong.
An index of the shares of 24 large banks sank 10% after Treasury Secretary Timothy F. Geithner said Sunday that banks might need considerably more government money.
Bank of America declined 18%, Citigroup dropped 12% and JPMorgan Chase lost 9.3%.
The revived worries about the economy sent prices of oil and many other raw materials sliding.
Crude futures fell $3.97, or 7.3%, to $48.41 a barrel, their first close below $50 since March 18. An index of 19 commodities declined 3.2%.
The dispiriting news in the auto and banking sectors greased the way for the sell-off.
Investors were taken aback by the Obama administration’s unexpectedly hard line toward General Motors Corp. and Chrysler, which included a rejection of the companies’ restructuring plans and the forced departure of GM’s chief executive.
GM’s shares, which had more than doubled in this month’s rally, sagged more than 25%.
The developments greatly increased the odds that the companies could be forced to file for protection from creditors, while the administration’s aggressive stance stirred concern that the government could dictate intrusive terms to other troubled companies, particularly financial institutions.
The mood was further soured by Geithner’s comment that “some banks are going to need large amounts of assistance.” The remark was viewed as an early signal that the government’s so-called stress tests of major banks were yielding disappointing results.
The March rally was prompted by comments from Citigroup and Bank of America that they were notching operating profits in the first two months of the year. But the CEOs of Bank of America and JPMorgan Chase indicated Friday that March wasn’t going as well as January and February had gone.