Stocks look to open lower on Tuesday in response to declines in Europe and Asia.
At the same time, Chrysler Group may have found a new ally in Fiat (FIATY, news, msgs), the Italian automaker. The Wall Street Journal was reporting late Monday that Fiat was near a deal to acquire a 35% stake in Chrysler by midyear, with Fiat acquiring a majority interest later on. An announcement about the deal could come as early as Tuesday.
Fiat wouldn't contribute cash; rather, it would retool a Chrysler plant so it could produce Fiat autos in the United States, the paper said. It would also provide transmission and engine technology to help Chrysler offer more fuel-efficient vehicles.
But continuing worries about banks may weigh on stocks. A new worry came to light over the weekend after investors saw a Securities and Exchange Commission filing from State Street (STT, news, msgs), a big money management firm. In the filing, State Street said it has more than $9 billion in unrealized losses from two areas of its business and took a $450 million charge to cover losses in investment pools called "stable value funds."
Stock and bond markets were closed Monday for the Martin Luther King holiday.
Tuesday, amid all the hoopla about Obama's inauguration, will include earnings reports from Johnson & Johnson (JNJ, news, msgs), railroad CSX (CSX, news, msgs) and computer giant IBM (IBM, news, msgs).
Oil, Asian stocks move lower
There was electronic trading of energy and metals futures. Crude oil was down $1.86 a barrel, or 5.1%, to $34.65 late on Monday. Falling global demand was cited as the reason. Gold was off $1 to $838.90.In early Tuesday trading, Japan's Nikkei 225 Index ($N225) was down 3.1% to 7,999, and Hong Kong's Hang Seng Index ($HSIX) rose 3.5% to 12,870.
European stocks were lower, with the FTSE-100 Index ($GB:UKX) in the United Kingdom off 0.93% to 4,108 and the German Xetra Dax Index ($DE:DAX) down 1.2% to 4,316.
European stock markets declined Monday with banks in free fall as investors fretted over a second British government bailout of the sector in just over three months and the possibility that much of the sector may have to be nationalized or receive further government help to stave off collapse.
Royal Bank of Scotland (RBS, news, msgs) shares fell 72% in London after it announced it would likely post a loss of $41.3 billion for the fourth quarter, the largest ever for a British company.
January is not opening well for stocks
The stock market that will open Tuesday before Barack Obama is sworn in as the 44th president has just come off the worst year since the Great Depression. 2009 isn't starting well either.While the Dow closed up 69 points to 8,281 on Friday and enjoyed its second gain in a row, the blue-chip index is down 5.6% for the month.
The Standard & Poor's 500 Index was off 5.9% for the month; none of the 10 sectors in the index was ahead. The Nasdaq Composite Index was off 3%.
Only five of the 30 Dow stocks are higher this month -- General Motors (GM, news, msgs), Kraft Foods (KFT, news, msgs), Microsoft (MSFT, news, msgs), IBM (IBM, news, msgs) and Home Depot (HD, news, msgs).
That's not much of an improvement from 2008 when only two Dow stocks finished higher -- Wal-Mart Stores (WMT, news, msgs) and McDonald's (MCD, news, msgs).
At the same time, 161 S&P 500 stocks were showing gains this month as of Friday.
The Dow has fallen 21.6% during George W. Bush's two terms in office. The decline is the worst for any presidential term since Herbert Hoover. It's down 41.5% from its all-time high on Oct. 9, 2007.
Shares of Bank of America (BAC, news, msgs) fell 66% in 2008. Citigroup (C, news, msgs) slumped 77% in 2008 -- and is down 94% from its peak in August 2000. Merrill Lynch is part of Bank of America. Wachovia, Lehman Bros., Bear Stearns and Washington Mutual have disappeared. American International Group (AIG, news, msgs) is a ward of the government.
The market and presidents
If history is any guide, Tuesday should be quiet for U.S. stocks.The Dow has fallen an average 1% in all the inaugurations since 1960 -- or the first day of trading after the 1973, 1985 and 2001 inaugurations, which all occurred on weekends.
But a weak January could mean another down year for stocks as President-elect Obama's administration faces more turmoil in global financial markets than any administration since World War II.
The crisis erupted when defaults on home mortgages began to balloon in early 2007. In turn, that caused bonds backed by the mortgages and securities built on top of the mortgage bonds to go south.
| Year | President | Dow close | Chg. | % chg. | |
|---|---|---|---|---|---|
2009 | Barack Obama | 8281.22** | ? | ? | |
2005 | George W. Bush | 10471.47 | -68.5 | -0.65% | |
2001 | George W. Bush* | 10578.24 | 9.35 | 0.09% | -1.01% |
1997 | Bill Clinton | 6843.87 | 10.78 | 0.16% | 54.57% |
1993 | Bill Clinton | 3241.95 | -14.04 | -0.43% | 111.10% |
1989 | George H.W. Bush | 2235.36 | -3.75 | 0.17% | 45.03% |
1985 | Ronald Reagan* | 1261.37 | 34.01 | 2.77% | 77.22% |
1981 | Ronald Reagan | 950.69 | -20.29 | -2.09% | 32.68% |
1977 | Jimmy Carter | 959.03 | -9.64 | -1.00% | -0.87% |
1973 | Richard Nixon* | 1018.81 | -7.38 | 0.72% | -5.87% |
1969 | Richard Nixon | 931.25 | -4.29 | -0.46% | 9.40% |
1965 | Lyndon Johnson | 893.31 | -0.96 | -11% | 4.25% |
1961 | John F. Kennedy | 634.37 | 1.98 | 0.31% | 40.82% |
*Jan. 20 was on a weekend; results are from first trading day after the inauguration.
**Friday close
Worse, because many of those securities were entirely unregulated, it became impossible to put values on them. And then it turned out that banks and investment houses around the world had invested billions in these securities -- only to discover they were anything but secure.
Credit markets froze up because banks and other financial institutions that routinely lent money back and forth charged ever-higher rates and fees for their money.
The freeze has made it very difficult for businesses and consumers alike to get credit for new investments, homes, new cars and other major currencies. Automakers, including General Motors, Ford Motor (F, news, msgs) and Toyota (TM, news, msgs) complain that credit tightness is the biggest problem they face.
More from MSN Money
The harsh results of the crash
The crash of 2007-08 means that the retirement plans of current retirees and baby boomers need to be recalibrated. Ditto the college plans of thousands of students.Thousands of jobs have disappeared, with some 21,000 layoffs coming on Friday alone. More layoffs are coming; the national unemployment rate may well approach 10% this year. The U.S.-domiciled auto industry could collapse during this downturn.
Meanwhile the shrinkage of wealth and demand for goods and services around the world increases the risks that social unrest will worsen in many countries. The Great Depression provided the fuel that brought many extremist groups to power and created World War II.
The president-elect has cautioned that fixing the economy -- starting with the credit markets and the banking system -- and fixing the markets will take time. It may be 2010 before the economy starts to grow again. Polls released in the last week suggest that Americans understand how serious the problems are.
Can Obama break the bubbles?
If there's one great opportunity for the new administration, it's finding a way to break what looks like an endless cycle of investors rushing from one group of assets into another and creating bubbles in the process.No fewer than five bubbles have blown up since 2000:
- Tech stocks peaked in early 2000 in the dot-com bust and are still down 70%.
- The housing boom peaked in early 2006. Housing starts have fallen 72% since then.
- Oil prices shot up to $147.27 a barrel on July 14, 2008 -- and have fallen 75% since.
- Stocks in the financial sector peaked in early 2007 and have fallen 74% since.
- The price of copper -- which we'll use as a proxy for non-energy commodities -- jumped 583% between 2001 and 2008. It's fallen nearly 70% since the spring of 2008.
- Bubbles are a reality of financial markets. They're usually a signal of an economy that's about to break.
But so many bubbles exploding in so short a time suggests strongly that something in the U.S. economy -- and the global economy -- was wildly amiss.
One can argue, for example, that the oil bubble was caused by a falling dollar, growing demand from emerging countries like China, India, Russia and Brazil, and the increasing difficulty of finding new oil supplies. Toss into that cauldron low interest rates at the beginning of the decade and an artificially low Japanese yen that made borrowing money to speculate in anything ridiculously easy.
But it's also true that speculators and the trading desks of investment houses who had no fear of regulators led others to pile into oil, pushing prices to ridiculously inflated levels until consumers changed their behavior so quickly that the market broke.
| President | Years in office | Dow chg. |
|---|---|---|
George W. Bush | 2001-2009 | -21.78% |
Bill Clinton | 1993-2001 | 225.17% |
George H.W. Bush | 1989-1993 | 45.41% |
Ronald Reagan | 1981-1989 | 130.60% |
Jimmy Carter | 1977-1981 | 0.24% |
Richard Nixon/Gerald Ford | 1973-1977 | -5.61% |
Richard Nixon | 1969-1973 | 9.69% |
Lyndon Johnson | 1965-1969 | 4.38% |
John Kennedy / Lyndon Johnson | 1961-1965 | 41.73% |
Elizabeth Strott and Andrew Rosenbaum contributed to this report.