Dow falls 125 as financial, energy shares drop

By Charley Blaine and Elizabeth Strott

Stocks fell back today as economic weakness, lower oil and commodity prices and continued worries about the biggest banks kept investors on edge.

At the close, the Dow Jones industrials were down 125 points, or 1.5%, to 8,474. The Standard & Poor's 500 Index was down 20 points, or 2.3%, to 870. The Nasdaq Composite Index was off 33 points, or 2.1%, to 1,539.

It was the fourth straight loss for the Dow, three of which have been greater than 100 points.

The S&P 500 and Nasdaq suffered their third losses in four sessions.

• Get free, real-time stock quotes on MSN Money

Financial and energy stocks were the biggest reason for the selling -- and for a rally in Treasury securities as some investors sought safety. The yield on the 10-year Treasury note fell to 2.31% today from 2.41% on Friday.

Energy shares slumped as crude oil in New York tumbled nearly 8% to close at $37.59 a barrel. Traders said that weak demand is trumping production cuts by the Organization of Petroleum Exporting Countries.

Since hitting an intraday high of $50.47 a barrel on Jan. 6, crude has slumped nearly 26%. Exxon Mobil (XOM, news, msgs) was off 1.3% to $76.54; Chevron (CVX, news, msgs) was down 2.8% to $70.82.

Financial stocks were lower as concern grew about the health of two of the largest financial stocks: Citigroup (C, news, msgs) and Bank of America (BAC, news, msgs).

Some analysts were projecting the two would report larger-than-expected losses next week, Ladenburg Thalmann analyst Richard Bove wrote clients late today. Bove said Citigroup may report a loss of $10 billion or $1.30. A week ago, the consensus estimate was a loss of 74 cents a share.

Metals stocks were lower as well, as the dollar rose against major currencies. Alcoa (AA, news, msgs) was off 6.9% to $10.06 just before reporting its first quarterly loss in six years.

• Top Stocks blog: A cell phone company to watch

Is a test of the November lows ahead?

Today's selling is a recognition that the recession may get worse before it gets better. It also raises the possibility that stocks may test their 2008 lows, which came on Nov. 20 for just about all indexes.

The Dow had risen nearly 20% from its Nov. 20 close when it hit 9,035 on Jan. 2. Since then, it has given up about a third of its gain, falling 500 points or about 5.8%. The S&P 500 is off 6.4% from its Jan. 6 close, its high since Nov. 20; the Nasdaq is off 6.5% from its Jan. 6 close.

The major indexes also had moved above their 50-day moving average right after the first of the year. The 50-day average is important because many investors use it to trigger new buys. If they don't buy, a stock or index could move lower.

All three indexes were under those levels today.

The weakness has some analysts worried that January will end with a decline, which could affect the market for the year. For roughly three out of every four years since 1950, a decline in the S&P 500 in January means the index will move lower for the year, according to the Stock Traders Almanac.

Until last week, as Raymond James analyst Jeffrey Saut wrote to clients today, the equity markets had been turning a deaf ear to bad news. Last week, the markets started "listening" to bad news, which included President-elect Barack Obama's comment that the government might run deficits of $1 trillion or more for at least several years.

"And that, ladies and gentlemen, is a distinct change from what we have been seeing for the past few months," Saut said.

Only five of the 30 Dow stocks were higher today, led by General Motors (GM, news, msgs), up 3% to $4.15. Only 71 S&P 500 stocks showed gains, along with just 10 stocks in the Nasdaq-100 Index ($NDX.X), which fell 22 points, or 1.8%, to 1,201.

Energy prices -- New York close

	Mon.	Fri.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$37.59	$40.83	-$3.24	-15.72%	-15.72%
Heating oil (per gallon)	$1.4724	$1.4877	-$0.0153	4.74%	4.74%
Natural gas (per million BTU)	$5.5420	$5.5160	$0.0260	-1.42%	-1.42%
Unleaded gasoline (per gallon)	$1.0841	$1.1112	-$0.0271	7.53%	7.53%

Nasty earnings may hit stocks

Stocks are likely to be pressured Tuesday by Alcoa's earnings as a difficult earnings season gets under way. And the news won't get much better this week.

JPMorgan Chase (JPM, news, msgs) CEO Jamie Dimon said today that his company's fourth-quarter earnings would be "terrible." The company will report its fourth-quarter earnings before Thursday's open; it had originally scheduled its report for next week.

There were suggestions that Morgan's move was made to separate itself from Citigroup and Bank of America.

Morgan was down 4.1% to $24.91.

Thomson Reuters said Friday that fourth-quarter earnings for the S&P 500 would fall 15.1%. That's a collapse, basically, from July 1, when analysts were expecting fourth-quarter earnings to grow 59%.

Materials stocks are likely to be the weakest of the S&P 500 sectors, with earnings falling as much as 69%.

Alcoa's big miss

After the close, aluminum giant Alcoa (AA, news, msgs) reported a larger-than-expected fourth-quarter loss as the global economic crisis cut revenue by nearly 19%.

The stock fell 6.9% in $10.06 in regular trading and an additional 1.1% to $9.95 after hours.

To cope with diminishing demand, Alcoa last week announced plans to lay off about 15,000 jobs by the end of 2009, further cut production and spending, and sell four of its subsidiaries. Alcoa said it expected to save $450 million annually as a result of the cutbacks.

Alcoa lost $1.2 billion, or $1.49 a share, on revenue of $5.7 billion, its first quarterly loss in six years. A year ago, Alcoa earned $632 million, or 75 cents a share, on revenue of $7 billion.

• Learn how to invest with our New Investor Center

The company lost 28 cents a share from operations; analysts had expected the loss from continuing operations at 5 cents a share. It also took one-time charges of 88 cents.

Aluminum was at 71 cents a pound today, down about 54% from peaks of $1.50 a pound. At current prices, the company can't make a profit, analyst Brian Hicks, co-manager of the Global Resources Fund, told Reuters. "It wouldn't surprise me to see further production cuts."

There was speculation that Alcoa would cut its quarterly dividend, now 17 cents a share, but the company did not discuss the dividend in its report.

Citigroup and Bank of America lead financials lower

Citigroup was down 17% to $5.60 as investors seemed to want nothing to do with a plan to merge Citigroup's Smith Barney brokerage business into a joint venture with Morgan Stanley's (MS, news, msgs). Critics say the proposal, first reported on Friday afternoon, would benefit Morgan Stanley, and Citigroup would get little benefit.

Morgan Stanley could pay between $2 billion and $3 billion for the unit, allowing Citigroup to then book a gain between $6 billion and $10 billion.

• Top Stocks blog: Congress forces mortgage modifications

Morgan Stanley would also have the option to buy the remaining 49% of Smith Barney over the next three to five years. Morgan Stanley has 8,000 brokers, and Smith Barney has about 11,000.

A deal wouldn't surprise the Street: Citigroup has faced $20 billion in losses over the past four quarters.

Morgan Stanley was down 1.4% to $18.79.

Meanwhile, Bank of America was off 12% to $11.43 on worries about how the weakening economy would affect the financial giant's mortgage and consumer finance businesses. In addition, investors appeared concerned about management turmoil at Merrill Lynch, the giant brokerage that merged with Bank of America on Dec. 31.

Techs sag on downgrades

Downgrades of Amazon.com (AMZN, news, msgs) and Yahoo (YHOO, news, msgs) pushed tech shares lower.

Amazon.com fell 6.5% to $51.92; Yahoo was off 6.9% to $12.22.

The downgrades came from analysts at research firm Broadpoint AmTech. Tim Boyd downgraded Amazon.com to "sell" from "neutral" after representatives were unimpressed by attendance at last week's Consumer Electronics Show in Las Vegas. "Our tech team came away from last week's CES looking like it had seen a ghost," he wrote today. "That ghost is the U.S. consumer."

Yahoo will remain "challenged" amid the advertising sales slowdown, analyst Rob Sanderson said. He cut his rating on the stock to "neutral" from "buy."

Abbott Labs to pay 150% premium for optical company

Drug maker Abbott Labs (ABT, news, msgs) will pay $2.8 billion, or $22 per share, for Advanced Medical Optics (EYE, news, msgs), in a move to expand into the Lasik surgery business.AMO is the biggest provider of surgical devices for Lasik vision corrective procedures. It is also a player in contact-lens care products and cataract surgical devices.

AMO stock jumped 142.9%, to $21.50; Abbott Labs fell 2.2% to $50.06.

Separately, Abbott Labs said it expects to earn between $3.65 and $3.70 per share for 2009, in line with the consensus estimate of $3.66 per share.

Automakers focus on hybrids at auto show

The beaten-down U.S. automakers are displaying their newest, brightest and greenest at the 2009 Detroit Auto Show, which opened Sunday.

General Motors kicked off the event with a promise of a "smarter, smaller and more fuel-efficient" future. GM highlighted its plug-in electric Chevy Volt, due out next year, as well as a minicar, the Chevrolet Spark, and a concept electric Cadillac called the Converj. GM received $4 billion in bridge loans from the government last month to help the company stay afloat through the end of March.

Privately held Chrysler introduced its concept electric sedan, the 200C EV. Chief Executive Officer Bob Nardelli said the company is committed to being a "viable" stand-alone company. No one, he added, "should read what we're doing as if we are trying to position the company for sale." Chrysler also received $4 billion in loans from the government.

Ford Motor (F, news, msgs), which for now has said it can survive without any government assistance, said it will have a battery-powered car by 2011, but will let rivals GM and Toyota Motor (TM, news, msgs) take the lead to see if customers will start to buy them.

• Top Stocks blog: Ford tries to set itself apart

Yet the push toward hybrids and electric cars may be undermined by gasoline prices. The average price of a gallon of regular gas was $1.79 today, down slightly from Sunday, according to the AAA Fuel Gauge Report, down more than 56% from the record $4.114 seen in July.

In addition to GM's gain, Ford added 0.4% to $2.64. Toyota fell 1.4% to $65.62 in New York, and Honda slipped 1.2% to $22.22 in New York.

Japanese automakers feeling pressure

Meanwhile, Toyota has appointed Akio Toyoda, grandson of Toyota's founder, as company president, The Wall Street Journal reported this morning.

Toyota Motor announced its first-ever operating loss, a total of $1.7 billion for 2008, in December, and the company's board hopes that the aggressive management style for which Toyoda is known will help to push sales back up.

Meanwhile rival Honda Motor (HMC, news, msgs) announced over the weekend that it would cut its U.S. inventory by one-third. Honda had already said that it would slash U.S. auto production by about 200,000 units. The company saw sales decline by 30% in the last quarter of 2008.

Andrew Rosenbaum contributed to this report.

Short hits from the markets -- New York close

	Mon.	Fri.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	0.065%	0.065%	0.000	-43.48%	-43.48%
5-year Treasury note yield	1.441%	1.525%	-0.084	-7.09%	-7.09%
10-year Treasury note yield	2.309%	2.407%	-0.098	2.90%	2.90%
30-year Treasury bond yield	2.990%	3.055%	-0.065	11.11%	11.11%
Currencies
U.S. Dollar Index	83.745	83.455	0.290	1.94%	1.94%
British pound in dollars	$1.4852	$1.5135	-0.0283	0.80%	0.80%
Dollar in British pounds	£0.6733	£0.6607	0.0126	-0.80%	-0.80%
Euro in dollars	$1.3408	$1.3475	-0.0067	-4.29%	-4.29%
Dollar in euros	€ 0.7458	€ 0.7421	0.0037	4.48%	4.48%
Dollar in yen	89.20	90.02	-0.82	-1.60%	-1.60%
Canadian dollar in U.S. dollars	$0.825	$0.841	-$0.0152	0.93%	0.93%
U.S. dollar in Canadian dollars	$1.212	$1.189	$0.0228	-0.92%	-0.92%
Commodities
Gold	$821.00	$855.00	-$34.00	-7.16%	-7.16%
Copper	$1.4885	$1.5595	-$0.07	5.57%	5.57%
Silver	$10.7500	$11.3200	-$0.57	-4.83%	-4.83%
Corn	$3.8075	$4.1075	-$0.30	-6.45%	-6.45%
Crude oil (NYMEX) (per barrel)	$37.59	$40.83	-$3.24	-15.72%	-15.72%