Stocks fall on drip-drop of bad news
Major indexes fall as Toyota issues profit warning and GM is downgraded. Walgreens misses first-quarter earnings estimates. Oil falls below $40.
NEW YORK (CNNMoney.com) -- Stocks fell Monday in a thinly traded session amid concerns about fourth-quarter corporate earnings, falling oil prices and ongoing woes in the auto industry.
The Dow Jones industrial average (INDU) fell 0.7% according to early tallies. The Standard & Poor's 500 (SPX) index dipped 2% and the Nasdaq composite (COMP) was lost 1.8%.
Stocks languished for most of the morning before falling sharply in the afternoon as oil prices slid below $40 a barrel. That sent shares of oil industry firms Chevron Corp (CVX, Fortune 500) and Exxon Mobil (XOM, Fortune 500) lower and weighed on the Dow. But the major indexes recovered some ground near the closing bell.
Prices for U.S. Treasury bonds fell as the government auctioned $92 billion in short-term debt. Gold prices rose.
"The general sentiment remains very weak," said David Levy, a portfolio manager at Kenjol Capital Management.
The market could be pressured in the weeks ahead as companies begin reporting fourth-quarter results, which are expected to remain soft, Levy added.
Still, December and January are traditionally some of the best months for stocks, and many investors say January sets the tone for the rest of the year.
"There's no doubt that there are plenty of opportunities in the market," Levy said. "But we can't say if there are other shoes left to drop."
Stocks may find some support early next year as details about President-elect Obama's stimulus plan become apparent, according to Art Hogan, chief market strategist at Jefferies & Co. in New York. Obama has called for an economic stimulus that would focus on rebuilding infrastructure and creating jobs. It is projected to cost between $500 billion and $700 billion over two years.
"As we get answers and more clarity on the fiscal stimulus plan, I think this market is going to celebrate that news," Hogan told CNNMoney.com.
Trading is expected to be volatile this week, with many market participants out for the holiday. Markets will close early on Wednesday and will remain closed on Thursday for the Christmas holiday.
Stocks ended mixed on Friday as investors responded to the Bush administration's plan to bail out the auto industry, and readjusted portfolios amid a plethora of options expirations.
Market breadth was negative. Declining shares outnumbered advancers by more than 2-to-1 with about 90 million shares changing hands on the New York Stock Exchange.
Automakers: Shares of Toyota (TM) fell after Japan's leading carmaker warned it will suffer an operating loss next year.
Toyota has been hit by declining U.S. sales and a stronger yen, which hurts profits when overseas sales are converted into the Japanese currency.
Meanwhile, shares of General Motors (GM, Fortune 500) fell more than 20% after analysts at Credit Suisse downgraded the stock and warned that the nation's leading automaker may already be drained of equity.
"In light of the complete overhaul of GM's capital structure that will likely be required to turn the company into a 'viable' entity and to comply with the government's requirements...[for]...the just-agreed-upon $13.4 billion in loans, we think existing equity holders will be largely (if not entirely) wiped out in the process," said Credit Suisse analysts in a research report.
President Bush said Friday the government will lend $13.4 billion to General Motors and Chrylser from the $700 billion financial-rescue plan.
Truck and tractor maker Caterpillar (CAT, Fortune 500) announced plans to lay off more than 800 employees at one of its engine plants and said it will take other steps to cut costs. The stock fell nearly 3%.
Corporate news: Moody's Investor Services placed Alcoa's (AA, Fortune 500) credit rating under review for a possible downgrade due to weakening demand and falling aluminum prices. Alcoa shares ended down 5%.
Shares of drugstore chain Walgreens fell after the company said its first-quarter net income fell 11% and announced plans to further limit store openings next year.
Walgreens (WAG, Fortune 500) posted net income of $408 million, or 41 cents a share, for the quarter ended Nov. 30, compared with $456 million, or 46 cents a share, a year earlier. Analysts were expecting earnings per share of 46 cents.
Insurance giant American International Group said it will sell Hartford Steam Boiler, a subsidiary equipment insurer, to Munich Re Group for $742 million in cash and $76 million in stock.
AIG has been allocated more than $150 billion in government financing and was effectively nationalized in September. The company, which nearly collapsed earlier this year, has said it will repay the government loans by selling assets.
Shares of AIG (AIG, Fortune 500) were up about 3%.
Retail: The market is also being pressured by concerns about anemic consumer spending.
In the latest sign of consumer distress, online holiday sales registered a declined for the first time in seven years, according to sales tracker ComScore.
Online spending for the first 49 days of the critical November-December gift-buying period fell 1% to $24.03 billion, compared to $24.15 billion over the same period last year, ComScore said.
That is a problem because consumer spending makes up two-thirds of the nation's overall economic activity.
Global economy: Central bankers in China and finance ministers in Ireland announced new steps aimed at limiting the global economic slowdown.
People's Bank of China lowered its benchmark 1-year lending rate to 2.25% from 2.52%, according to published reports. Last month, China cut its key rate by more than a percent as part of Beijing's multibillion-dollar plan to keep its economy afloat.
Meanwhile, finance ministers in Ireland announced a $7.7 billion bailout of three of the country's leading banks.
"The objective of these decisions is to ensure that the financial system in Ireland meets the everyday financial needs of individuals, businesses and the overall economy," said Brian Cowen, Ireland's prime minister in a statement.
Under the terms of the bailout, the government will take a majority stake in Anglo Irish Bank (AGIB.Y) and will inject capital into Allied Irish Banks (AIB) and Bank of Ireland (IRLBF).
Bonds: The benchmark 10-year note fell 9/32 to 114 7/32 and its yield rose to 2.14% from 2.07% on Friday. Treasury prices and yields move in opposite direction. The 10-year yield dipped below 3% in November for the first time since the note was first issued in 1962.
Lending rates were mixed. The 3-month Libor rate slipped to 1.47% from 1.49% Friday, according to Bloomberg. The overnight Libor was unchanged at 0.11%. Libor is a key bank lending rate.
Other markets: In global trading, Asian markets were mixed, with Japan's Nikkei rising 1.5%. Major indexes in Europe closed lower.
The dollar was mixed versus the euro and gained against the pound and the yen.
U.S. light crude oil for February delivery was down $2.45 to settle at $39.91 a barrel in New York.
COMEX gold for February delivery gained $9.80 to $847.20 an ounce.
Gasoline prices fell overnight to a national average of $1.663 a gallon from $1.668, according to a survey of credit-card swipes released Monday by motorist group AAA. 
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