Stocks end in big retreat on credit fears
Dow loses 240 points as continuing bank troubles and prospects of worsening economic conditions spook investors.
NEW YORK (CNNMoney.com) -- Wall Street finished Monday in a sharp decline, reeling from continued concerns about the credit crisis and the battered U.S. economy.
The Dow Jones industrial average (INDU) sank 240 points, falling 2.1%. Stocks finished slightly higher in the previous session as encouraging reports from the housing and manufacturing sectors managed to overshadow investors' ongoing fears about financials.
The broader Standard & Poor's 500 index (SPX) fell 1.9%, while the tech-ladenNasdaq composite index (COMP) sank 2%.
In a day devoid of economic reports, stocks were dragged again by the struggling financial sector.
"Investors are wondering how bad the loan losses are going to end up being," said Bill Stone, chief investment strategist with PNC Wealth Management. "The market is still grappling with the issue of: how deep does this get?"
After many days of strong gains, financials began to sink toward the end of last week, when some dour economic news renewed fears that the credit crisis will not end anytime soon.
Stocks opened the day lower as worries about the credit crisis were exacerbated by federal regulators shuttering two more regional banks late Friday. The two banks, owned by First National Bank Holding Co., reopened Monday as Mutual of Omaha Bank branches. (Full story)
Stocks came off their lows briefly Monday after Treasury Secretary Henry Paulson laid out guidelines for banks seeking to issue so-called covered bonds as a way to finance home mortgages, which has support from four of the nation's largest lenders.
"There's a lot of waiting around due to the economic data that's coming out later in the week," said Stone. "Investors are anxiously waiting for the employment index, because that could have a big impact on financials."
Investors will see if the market can rebound Tuesday as a key measure of consumer confidence is due to be released shortly after the opening bell. Scores of earnings reports are also due before and after Tuesday's session.
Financials pressured again: After reporting large losses or sinking earnings during the past few weeks, shares of Citigroup (C, Fortune 500) fell 7.5%, Bank of America (BAC, Fortune 500) sank 5.1%, and Wachovia (WB, Fortune 500) tumbled 6% Monday. Bond insurer Ambac (ABK) was the biggest loser for the day, falling 19%.
"There's a realization that we don't know when the turn will occur for these companies," said Stone. "We thought we saw a glimmer of hope, but if you own a stake in a company that's capital-constrained, you're still in trouble."
But government-backed mortgage finance giants Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) turned higher Monday after the Senate approved a bill on Saturday that could establish a rescue plan for the embattled firms. The bill would also provide up to $300 billion in loans for troubled homeowners. The House passed the bill on Wednesday, and President Bush is expected to sign it soon. (Full story)
Shares of Fannie and Freddie both soared in morning trading, but fell back sharply by midday. At the market close, Fannie fell 10.7% and Freddie sank 6.7%
Some analysts think that financials - and the stock market - are due for another rally, however.
"We're making a bottom here," said Harry Clark, founder and CEO of Clark Capital Management Group. "The market's pretty oversold, and the underpinnings of a rally are all there."
The market has strung together a couple of rallies recently but they have been thwarted by economic concerns. Clark noted that the previous bear market had four major rallies before finally breaking free and rising to new highs.
"There's been a lot of bad news coming from financials, and it didn't cause much consternation," said Clark. "Earnings in general have been pretty good, which favors a rally."
Oil: Oil prices rose $1.47 to $124.73 per barrel as traders weighed slumping demand with renewed concerns about Iran's nuclear capabilities. Nonetheless, crude is still about $24 below its high of $147.27 set on July 11. (Full story).
Corporate news: Verizon (VZ, Fortune 500) reported that quarterly earnings grew 12%, beating Wall Street analysts' forecasts. The company said that profits were boosted by growing wireless operations, despite more customers shifting away from land lines. Revenue, however, fell short of expectations, and shares fell 2.5% Monday. (Full story)
Kraft Foods (KFT, Fortune 500) said its quarterly profit rose 4%, which surpassed analysts' expectations. The company's bottom line got a boost from higher prices offsetting an increase in commodity costs. Shares rose 4.9%. (Full story)
General Motors (GM, Fortune 500) said Monday it is planning further production cuts in its truck and SUV divisions. The U.S. automaker said it will eliminate shifts at two of its plants, cutting production by another 117,000 vehicles. Shares fell 7.6% Monday. (Full story)
Drugmaker Amgen (AMGN, Fortune 500) reported a positive study of its experimental osteoporosis drug called denosumab, sending shares soaring 12.2% Monday. After the bell, the company said its quarterly earnings surpassed Wall Street's forecasts.
Japanese automaker Toyota (TM) announced Monday it has cut its global sales and output targets by 350,000 vehicles for 2008 amid the slumping North American market. Shares fell 3.6%. (Full story)
Late Friday night, the Federal Communications Commission voted 3-2 to approve the merger between satellite radio companies XM and Sirius, ending a 16-month long wait. Sirius then announced that its losses should shrink dramatically in the second quarter. Still, shares of XM (XMSR) and Sirius (SIRI) dropped 12% and 16.4% respectively. (Full story)
Market breadth was very negative. On the New York Stock Exchange, decliners edged out advancers by a ratio of 5 to 2 on a volume of 1.2 billion shares. On the Nasdaq, losers edged out winners on a 3-to-1 ratio on a volume of 2 billion shares.
Gas prices: The average price of gasoline fell 1.2 cents to $3.958 per gallon in the United States, declining for the eleventh straight day, according to a daily survey from motorist advocacy group AAA. It was gasoline's lowest level since May 29. (Full story).
Other markets: In currency trading, the U.S. dollar slipped against global currencies. The greenback fell against the euro, even as a measure of German consumer confidence fell to a more-than-five-year low. (Full story).
COMEX gold for August delivery rose 90 cents to settle at $927.70 an ounce after fluctuating above and below the break even point for much of the day.
Treasury prices rose Monday, sending the yield on the benchmark 10-year note down to 4.01% from 4.11% late Friday. Bond prices and yields move in opposite directions. (Full story) 
