Stocks drop on recession jitters
Worries about the global economic slowdown remain in focus, sending Wall Street tumbling.
NEW YORK (CNNMoney.com) -- Stocks slipped Tuesday as recession fears trumped a new government and mortgage industry plan to help troubled homeowners.
The Dow Jones industrial average (INDU) lost 176 points, or 2%. The Standard & Poor's 500 (SPX) index and the Nasdaq composite (COMP) both shed 2.2%.
Stocks slumped through the early afternoon on recession fears, then recovered most of those losses after the government's mortgage modification plan was unveiled. But the recovery attempt petered out by the close.
"Between the automakers and the financials, bad news continues to dominate," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research.
He said good news doesn't seem to stick, with traders using any upswing as a chance to book profits.
After a weeklong selloff, stocks sit near bear-market lows hit in late October.
"At some point the selling will begin to exhaust itself," said Larry Glazer, managing director of Mayflower Advisors.
But he said it will take time for investors to move from fear, which is causing them to bail out, to the confidence that enables them to realize that 1% in a money market fund is not a good deal.
"Today they're paying a premium for safety," he said. "I think as we look past the first of the year, and the dust starts to settle, investors are going to say, 'OK, we've put money aside, now what?'"
Stocks slumped Monday as relief about AIG's loan restructuring vied with Circuit City's bankruptcy and more weakness for the automakers. Corporate news dominated Tuesday, with government offices and Treasury markets closed for Veterans Day.
In the afternoon, the Bush administration released its plan to help borrowers. The current plan focuses on Fannie Mae and Freddie Mac - which own or back a combined $5 trillion in mortgages. However, the plan does not provide any direct financial help from the U.S. government. (Full story)
American Express: Late Monday, the Federal Reserve gave the OK for the company and its American Express Travel unit to become bank holding companies. The move will give the company access to low-cost financing from the Fed, helping to stabilize amid the global credit crunch. American Express (AXP, Fortune 500) shares fell 6.6%. (Full story)
Automakers: GM (GM, Fortune 500) and Ford Motor (F, Fortune 500) continued to slide on worries that the companies won't be able to stay afloat without government intervention.
General Motors plunged to a 65-year low after it said it will idle an additional 1,900 jobs on top of those already announced. On Friday, GM posted a steep loss and said it is running out of cash. Ford Motor shares slumped too.
Both companies, along with Chrysler are seeking help from the U.S. government. On Monday, President-elect Barack Obama told President Bush that the automakers need more federal help, according to his aides.
Company news: Citigroup (C, Fortune 500) said it will modify $20 billion in home loans in an effort to keep 130,000 challenged borrowers from defaulting. Citigroup joins Bank of America and JPMorgan in announcing loan modification programs.
Late Monday, Starbucks (SBUX, Fortune 500) reported weaker earnings and higher revenue, both of which missed estimates. Shares declined modestly Tuesday.
Luxury homebuilder Toll Brothers (TOL, Fortune 500) warned that fiscal fourth-quarter homebuilding revenue fell sharply from a year ago. The company's CEO said that signs of stabilization in the sector that were present a few months ago have reversed amid the financial crisis. (Full story)
General Growth Properties (GGP), the No. 2 mall operator, plunged 64% in unusually active NYSE trade after the company warned it may file for bankruptcy because of near-term debt issues. After the close, S&P said General Growth Properties will be removed from the S&P 500 after the close of trade Wednesday and replaced by biotech Cephalon (CEPH).
Altria (MO, Fortune 500), the parent of Philip Morris USA, said it has started to cut jobs because of the economic turmoil.
Declines were broad based, with 29 of 30 Dow stocks falling, led by GM, AmEx and Alcoa (AA, Fortune 500).
Market breadth was negative. On the New York Stock Exchange, losers beat winners by over four to one on volume of 1.23 billion shares. On the Nasdaq, decliners topped advancers by almost three to one on volume of 1.95 billion shares.
Other markets: In global trading, Asian markets tumbled, with Japan's Nikkei 225 down 3%. European markets declined as well, with the London FTSE 100 falling 3.6%.
The dollar gained against the euro and fell versus the yen.
COMEX gold for December delivery fell $1.40 to settle at $732.80 an ounce.
U.S. light crude oil for December delivery fell $3.08 to settle at a 19-month low of $59.33 a barrel on the New York Mercantile Exchange.
Gasoline prices dipped another 2 cents to a national average of $2.22 a gallon, according to a survey of credit-card activity released Tuesday by motorist group AAA. The decline marks the 55th consecutive day that prices have decreased. During that same time period, prices dropped by $1.63 a gallon, or 42.4%.
Lending rates: The credit market continued to improve, with lending rates continuing to retreat from accelerated levels.
The 3-month Libor fell to 2.18% from 2.24% Monday, a four-year low, according to Bloomberg.com. Overnight Libor stood at 0.35%, unchanged from Monday and up modestly from an all-time low of 0.32% last week. Libor is a key interbank lending rate.
The Libor-OIS spread, a measure of cash scarcity, fell to 1.69% from 1.80% Friday. The TED spread, a key indicator of risk, narrowed to 1.96% from 2.03% Monday.
The U.S. Treasury market was closed for Veterans Day.
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