Big selloff on Wall Street
Stocks tumble after Citigroup downgrade revives worries about the mortgage and housing market fallout. Lowe's disappoints with its forecast.
NEW YORK (CNNMoney.com) -- Stocks tanked Monday as Goldman Sachs' dour outlook on the financial sector and a weak report on home builder confidence sparked a broad market selloff.
After the close, Hewlett-Packard (Charts, Fortune 500) reported quarterly sales and revenue that topped expectations. Shares gained 1.4 percent in extended-hours trading.
The Dow Jones industrial average (Charts) lost 218 points, falling below 13,000 for only the second time since the summer. The S&P 500 (Charts) index lost nearly 1.8 percent. The Nasdaq composite (Charts) declined almost 1.7 percent.
Small cap stocks were hit harder with the Russell 2000 (Charts) falling 2.5 percent.
Treasury prices rose, lowering the corresponding yields. Oil prices rose. Gold prices declined.
Goldman Sachs downgraded Citigroup (Charts, Fortune 500) to "sell" from "neutral" Monday and said the bank will likely have to take $15 billion in writedowns over the next two quarters due to bets on risky debt. Citigroup shares fell 5.9 percent.
Goldman also cut its price target on Merrill Lynch (Charts, Fortune 500), Morgan Stanley (Charts, Fortune 500) and others in the sector.
The comments sent the overall market lower, as investors were reminded that the breadth of the credit market fallout is not really known and could be a lot worse than has been expected.
Goldman Sachs didn't alert Wall Street to anything it didn't already know, but was nonetheless effective in triggering a selloff, said Art Hogan, chief market analyst at Jefferies & Co.
"Every time the issue is brought up and quantified, the market rolls over," Hogan said. "Today is no different."
Weak results and a disappointing forecast from home-improvement retailer Lowe's added to worries about the consumer's ability to keep spending, ahead of Black Friday, the day after Thanksgiving and the unofficial kickoff to the holiday shopping period.
Also weighing on sentiment: more problems for the dollar.
And in the afternoon, an industry report showed that home builder confidence remained at record low levels in November. (Full story).
There's also the Fed factor, said Robert Loest, portfolio manager at Integrity Funds.
"One of the things that's bothering everyone is that the Fed hasn't been talking liberally enough since the last meeting about lowering interest rates again," Loest said. "So there's a fear that they could be getting behind the curve."
At the October policy meeting, the central bank cut a key short-term interest rate by a quarter-percentage point to 4.50 percent. Many investors are hoping that the bank will cut rates again at its next meeting on Dec. 11.
Among other stock movers, Freddie Mac (Charts, Fortune 500) slumped after Credit Suisse said that the company could take up to $5 billion in losses due to its bets on risky debt.
Fellow government-sponsored mortgage company Fannie Mae (Charts) also slipped.
Lowe's (Charts, Fortune 500) slipped after posting lower quarterly earnings that topped estimates and warning that its fourth-quarter earnings won't meet estimates.
In merger news, Celgene (Charts) said it will buy Pharmion (Charts) for around $2.9 billion in cash and stock.
All but three of the 30 blue chips that make up the Dow fell. In addition to Citigroup and the other financial components, other big decliners included GM (Charts, Fortune 500), Alcoa (Charts, Fortune 500), Walt Disney (Charts, Fortune 500) and AT&T (Charts, Fortune 500).
Market breadth was negative. On the New York Stock Exchange, losers topped winners almost five to one on volume of 1.67 billion shares. On the Nasdaq, decliners topped advancers by more than four to one on volume of 2.17 billion shares.
U.S. light crude oil for January delivery rose 80 cents to settle at $94.64 a barrel on the New York Mercantile Exchange, after having been on both sides of unchanged through the morning.
Treasury prices rose, lowering the yield on the 10-year note to 4.07 percent from 4.16 percent late Friday. Treasury prices and yields move in opposite directions.
In currency trading, the dollar fell against the euro and the yen.
COMEX gold for December delivery fell $9 to settle at $778 an ounce.