Stocks fumble on bank woes
Wall Street slides after a pair of financial firms announce management shakeups, and S&P cuts debt rating for Merrill, Lehman and others.
NEW YORK (CNNMoney.com) -- Stocks tumbled Monday on new worries about the financial sector after S&P cut its debt rating on a number of banks, and Wachovia and Washington Mutual announced management shakeups.
The Dow Jones industrial average (INDU) lost about 135 points, or 1%. The broader Standard & Poor's 500 (SPX) index lost 1% and the Nasdaq composite (COMP) lost 1.2%.
Both Wachovia and Washington Mutual announced management changes in the morning, sparking early stock declines despite a pair of better-than-expected economic reports.
The broad stock declines accelerated in the afternoon after S&P said it was cutting its debt rating on Merrill Lynch (MER, Fortune 500), Lehman Brothers (LEH, Fortune 500) and Morgan Stanley (MS, Fortune 500) to "negative" from "stable" and cut its long-term outlook on JP Morgan Chase (JPM, Fortune 500) and Bank of America (BAC, Fortune 500). The changes followed S&P's conclusion of its review of the securities industry.
"Today we're seeing some broad-based weakness, with only the energy sector able to escape the selling," said Michael Sheldon, chief market strategist at RDM Financial Group.
He said that after rallying from mid-March to mid-May, stocks are likely to be stuck in a range for the time being, unless there is a pronounced pullback in oil prices.
Tech stocks rallied for a fourth session in a row Friday on Dell's improved earnings, at the end of a mixed month on Wall Street.
Tuesday brings the April reading on factory orders, while reports are due later in the week on employment, productivity and the services sector of the economy.
Tuesday morning also brings a speech from Federal Reserve Chairman Ben Bernanke on the economic outlook. Bernanke is speaking at the International Monetary Conference in Madrid.
Bank sector shakeup: Both Wachovia and Washington Mutual announced executive management changes amid the ongoing fallout from the credit market crisis.
The CEO of Wachovia (WB, Fortune 500) has been asked to step down by its board, following what the company characterized as a series of setbacks that have weighed on performance. Shares fell 1.7%.
Washington Mutual (WM, Fortune 500) said its CEO will no longer also hold the title of chairman, as the company struggles to return to profitability. Shares were little changed.
Blue-chip declines were broad based, with 27 out of 30 Dow stocks falling. American Express (AXP, Fortune 500), Boeing (BA, Fortune 500), Citigroup (C, Fortune 500), Merck (MRK, Fortune 500) and Verizon Communications (VZ, Fortune 500) were the biggest decliners. Components Chevron (CVX, Fortune 500), GM (GM, Fortune 500) and Intel (INTC, Fortune 500) were the only gainers.
Big tech decliners included Microsoft (MSFT, Fortune 500), Oracle (ORCL, Fortune 500) and eBay (EBAY, Fortune 500).
Market breadth was negative. On the New York Stock Exchange, losers topped winners by more than two to one on volume of 1.16 billion shares. On the Nasdaq, decliners beat advancers by over two to one on volume of 1.94 billion shares.
Economy: The morning's economic reports showed continued weakness, although results were not as bad as what some economists had been fearing.
The Institute for Supply Management said manufacturing activity contracted in May for the fourth straight month. However, the index still showed more strength than what economists had expected.
The ISM index rose to 49.6 in May versus forecasts for a decline to 48.5. (Full story)
Construction spending fell 0.4% in April, the government reported, after dropping 0.6% in March. Economists surveyed by Briefing.com thought it would decline 0.6%. (Full story)
Oil prices rise: U.S. light crude oil for July delivery rose 41 cents to settle at $127.76 a barrel on the New York Mercantile Exchange.
Gas holds at record high: The national average price for a gallon of regular unleaded gas held at $3.975, AAA said, matching Sunday's record. That breaks a streak of 26 days of gains and 25 days of record highs. (Full story).
Other markets: The U.S. dollar rose versus the euro, continuing its recent recovery. Against the yen, the dollar slipped. (Full story).
Treasury prices rose, lowering the yield on the 10-year note to 3.96% from 4.06% late Friday. Bond prices and yields move in opposite directions.
COMEX gold for August delivery rose $5.50 to settle at $897 an ounce. 
