Stocks broke down today, with the Dow Jones Industrial Average falling to levels last seen in 1997 and the Standard & Poor's 500 Index breaking below its Nov. 20 closing low.
The Dow closed down 251 points, or 3.4%, to 7,115, its lowest close since May 7, 1997.
The S&P 500 was off 27 points, or 3.5%, to 743. The Nasdaq Composite Index was off 54 points, or 3.7%, to 1,388, its lowest close since April 2003.
The S&P 500's fall may be interpreted as a sell signal and could drive stocks lower still. The S&P 500's close was 9 points below its Nov. 20 close of 752.44, as well as its lowest close since April 14, 1997.
The market may get a boost on Tuesday from JPMorgan Chase (JPM, news, msgs). One of the healthiest big banks, JPMorgan said it was cutting its quarterly dividend to 5 cents from 38 cents.
Morgan made the move to retain $5 billion a year in cash. The company also said that it is "solidly profitable" this quarter and sees results in line with analyst estimates even after significant additions to reserves.
The company, which took $25 billion from the government's Troubled Asset Relief Program, said prudence dictated the move. The dividend cut will allow a faster repayment of the loan and maintain a strong capital decision. JPMorgan was down 2% to $19.51 in regular trading but up 4.3% to $20.35 after hours.
Stocks also may get a boost from better-than-expected earnings and guidance from upscale department store chain Nordstrom (JWN, news, msgs). Nordstrom shares were up 13.3% to $12.84 after hours; the shares had fallen 4.7% to $11.33 in regular trading.
Markets will also pay attention to Federal Reserve Chairman Ben Bernanke's testimony before Congress. President Barack Obama will address Congress Tuesday evening.
The market's pain today reflected the fear that many investors have about how bad the global recession will be. And it was a visible signal of Wall Street's frustration at how slowly the details to shore up the U.S. financial system are coming out of the Treasury Department. Some of those details are due this week.
Stock Charts (Year)
JPMorgan Chase
Citigroup
The Dow is off 10.5% since President Obama's inauguration. The S&P 500 is off 7.7% since Jan. 20, and the Nasdaq is down 3.7%.
To complicate matters, a CNBC reported that American International Group (AIG, news, msgs) officials have told the government that the company could file for Chapter 11 bankruptcy unless the government comes up with more assistance.
Reuters said AIG and the government are engaged in talks, as the insurance giant faces massive losses due to writedowns on commercial real estate and other assets.
Much of the market talk today was about whether the government should take over Citigroup (C, news, msgs) and possibly other troubled banks, but the market's worst performers today were technology, energy and materials stocks.
Citigroup closed up 9.7% to $2.14. Rival Bank of America (BAC, news, msgs) was up 3.2% to $3.91.
IBM (IBM, news, msgs) was down 5% to $84.37. Hewlett-Packard (HPQ, news, msgs) was off 6.3% to $29.28. HP and IBM combined to subtract 52 points from the Dow.
Stock Charts (Year)
U.S. Steel
Apple
Meanwhile, U.S. Steel (X, news, msgs) was down 13.2% to $21.53, and Dow component Alcoa (AA, news, msgs) was down 7.6% to $5.81. U.S. Steel has fallen more than 88% since peaking last June. Alcoa has fallen 86% since July 2007.
"There just don’t seem to be any clear signs that some of the problems have run their course," Mike Ryan, head of wealth management research for the Americas at UBS Financial Services, told Bloomberg News. "We’re still being governed by how deep the recession can be."
"Many investors simply can’t contemplate any more stock market risk in their portfolios," said market strategist Fritz Meyer of Invesco Aim, told Bloomberg News. "Sentiment in the market is very weak and negative."
Only four of the 30 Dows were higher on the day, along with just four stocks in the Nasdaq-100 Index ($NDX.X) and 29 S&P 500 stocks.
The distress in the stock market slammed crude oil, which fell 4% to $38.44 as investors worried that falling demand for fuels would offset any production cuts by members of the Organization of Petroleum Exporting Countries.
Exxon Mobil (XOM, news, msgs) was off 2.7% to $69.30. Apache (APA, news, msgs) was off 6.8% to $59.50, and Transocean (RIG, news, msgs) was down 6.8% to $55.46.
Nordstrom sees a stronger-than-expected year
Nordstrom shares surged when the department store chain said full-year earnings could range from $1.05 to $1.40 a share; Wall Street was projecting $1.24.But because of the uncertainty of the economy, it won't be offering quarter guidance going forward.
The company also reported better-than-expected fiscal-fourth quarter earnings of $68 million, or 31 cents a share, down 68% from a year earlier's $212 million, or 92 cents. Revenue for the quarter was $2.3 billion, down 8.5% from a year ago. Same-store sales had fallen 12.5%.
The company expects to continue cost cutting and tight inventory control.
Companies reporting earnings on Tuesday include Nordstrom rival Macy's (M, news, msgs), food company H.J. Heinz (HNJ, news, msgs) and media company Thomson Reuters (TRI, news, msgs).
| Mon. | Fri. | Chg. | Month chg. | YTD chg. | |
|---|---|---|---|---|---|
| Crude oil (NYMEX) (per barrel) | $38.44 | $40.03 | -$1.59 | -7.77% | -13.81% |
| Heating oil (per gallon) | $1.1754 | $1.1967 | -$0.0213 | -18.03% | -16.38% |
| Natural gas (per million BTU) | $4.0970 | $4.0060 | $0.0910 | -7.24% | -27.13% |
| Unleaded gasoline (per gallon) | $1.0433 | $1.0746 | -$0.0313 | -17.78% | 3.48% |
U.S. may boost its stake in Citigroup
The Citigroup talk began with a report from The Wall Street Journal that the company is in talks with federal officials about boosting the government's stake. The move would avoid a full-scale nationalization of the bank, instead making the U.S. government a major shareholder. The government could own up to 40% of Citigroup's common stock, the report said, although the bank is hoping the stake would be only 25%.According to the Journal, the discussions with Citigroup revolve around converting all or part of the government's present 7.8% stake -- a position that cost the federal government $45 billion -- into common shares.
- Top stocks blog: More signs of Feds moving into banks
The move would involve no additional cost to U.S. taxpayers but would shore up the bank's balance sheet by easing capital requirements. Holders of common stock would see the value of that stock diluted, in a technical sense, but might benefit anyway if the move increases confidence in Citigroup's ability to weather the crisis it faces.
"It's good news that the bank likely won't be 100% nationalized," John Haynes, senior U.S. equity strategist at Rensburg Sheppards, told Bloomberg News. "It's a relief even if only 20% remains out of government hands."
Another expert was less optimistic: "If the banking industry was nationalized for only 15 minutes that would be enough time to wipe out the total investment of common and preferred shareholders in the industry (and), depending on what nationalization means to its proponents, wipe out the debt holders' stakes in these companies," Dick Bove, analyst at Rochdale Research, wrote in a note to clients today.
"Nationalization would not only cause millions of Americans to lose trillions of dollars, it would impose a system on the U.S. economy that would destroy its ability to recover for decades."
The government invested $25 billion in the bank in October, then an additional $20 billion at the end of November. It has also guaranteed troubled assets at Citigroup for up to $301 billion.
"We're hoping to see the end of uncertainty around the banking sector," Tony Morriss, senior markets strategist at ANZ Investment Bank, told Thomson Reuters. "The government is expected to make a commitment that some banks are too big to fail and that the economic consequences would be too bad to contemplate."
Geithner to give details of bank plan
Another factor that drove bank stocks higher today was investors' expectation that Treasury Secretary Tim Geithner will provide more details this week on administration plans to rescue the entire sector.Shares in banks like Bank of America and Wells Fargo (WFC, news, msgs) are trading at the lowest levels in their history.
Earlier this month, Geithner sketched out a plan to rescue the banks, but the markets tanked in reaction, as many investors were looking for more detail than Geithner supplied.
Bankruptcy plan on back burner for GM, Chrysler
The fragile banking system isn't the only thing on the White House's plate this week.The Obama administration is reconsidering the option of a Chapter 11 restructuring for General Motors (GM, news, msgs) and Chrysler Group, The Wall Street Journal reported today.
The White House is in discussions with outside advisers to arrange $40 billion in financing, the paper reported. Administration sources have explained that they hope to avoid Chapter 11 filings and are exploring financing plans as part of a "due diligence" effort to evaluate all options. Bankruptcy lenders have said that they would not be able to make loans to the automakers without a plan for government support.
Both GM and Chrysler will need much more government aid in order to avoid some form of bankruptcy. GM has received $13.4 billion in loans so far and has asked for $16.6 billion more. Chrysler has received $4 billion and is seeking an additional $5 billion.
In related news, Ford Motor (F, news, msgs) has reached a tentative agreement with the United Auto Workers union. UAW President Ron Gettelfinger said that the two sides have agreed on changes to the union's health care trust for its retirees.
GM and Chrysler are still working on agreements with the union, as their government loans require modifications from the unions. GM was unchanged at $1.77. Ford jumped 9.5% to $1.73.
Yahoo's new CEO ready to shake things up
Carol Bartz has only been chief executive officer of Yahoo (YHOO, news, msgs) for a little over a month, but she's ready to take action.Bartz is planning a companywide reorganization, The Wall Street Journal reported over the weekend, which could mean a more top-down management style for the company.
- Top Stocks blog: News Corp's Chernin to leave
An announcement could come as early as Wednesday, the report said.
Yahoo founder Jerry Yang stepped down as CEO in November after failing to secure a deal with Microsoft (MSFT, news, msgs). Yahoo also posted a fourth-quarter loss of $303.4 million. The company's profits have fallen in 10 of the previous 11 quarters. (Microsoft is the publisher of MSN Money.)
Yahoo shares were down 1.4% to $11.97 this afternoon. Microsoft was off 4.4% to $17.21.
G-20 leaders push for regulation
European leaders of the Group of 20 nations proposed new market regulations at a weekend meeting in Berlin.Leaders from Britain, France, Germany, Italy, Luxembourg, Spain, the Czech Republic and the Netherlands worked to come up with proposals to present at the full Group of 20 meeting in London in April.
"We want to put a stop to tax havens," French President Nicolas Sarkozy told reporters after the meeting Sunday. "We want results on this, with a list of tax havens and a series of consequences."
Sarkozy also said that "Europe wants to see an overhaul of the system. A new system without sanctions would not have any meaning."
The European leaders are also calling for more regulation of all financial products and participants, including hedge funds.
"A clear message and concrete actions are necessary to engender new confidence in the markets and to put the world back on a path towards more growth and employment," a summary of the leaders' comments said.
Investors look to second GDP report
The government will release a second reading of fourth-quarter gross domestic product on Friday, and economists expect GDP to have fallen at a 5.5% annual pace, which would be the worst since 1982.The government's first reading showed a negative 3.8% pace in the last three quarters of 2008.
"We continue to believe an unprecedented amount of monetary and fiscal stimulus will lead to a modest recovery during the second half of 2009, but it now looks as if the economic downturn towards the end of 2008 and the beginning of 2009 will be sharper than initially suspected," wrote Meny Grauman, an economist for CIBC World Markets.
Andrew Rosenbaum contributed to this report.
| Mon. | Fri. | Chg. | Month chg. | YTD chg. | |
|---|---|---|---|---|---|
| Treasurys | |||||
| 13-week Treasury bill | 0.270% | 0.265% | 0.005 | 22.73% | 134.78% |
| 5-year Treasury note yield | 1.833% | 1.798% | 0.035 | -2.14% | 18.18% |
| 10-year Treasury note yield | 2.777% | 2.772% | 0.005 | -2.36% | 23.75% |
| 30-year Treasury bond yield | 3.525% | 3.565% | -0.040 | -2.16% | 30.99% |
| Currencies | |||||
| U.S. Dollar Index | 87.430 | 86.700 | 0.730 | 1.12% | 6.43% |
| British pound in dollars | $1.4493 | $1.4405 | 0.0088 | -0.16% | -1.64% |
| Dollar in British pounds | £0.6900 | £0.6942 | -0.0042 | 0.16% | 1.66% |
| Euro in dollars | $1.2718 | $1.2822 | -0.0104 | -0.76% | -9.22% |
| Dollar in euros | € 0.7863 | € 0.7799 | 0.0064 | 0.77% | 10.16% |
| Dollar in yen | 94.46 | 93.49 | 0.97 | 5.11% | 4.20% |
| Canadian dollar in U.S. dollars | $0.800 | $0.800 | $0.0004 | -1.74% | -2.18% |
| U.S. dollar in Canadian dollars | $1.251 | $1.250 | $0.0003 | 1.76% | 2.23% |
| Commodities | |||||
| Gold | $995.00 | $1,002.20 | -$7.20 | 7.17% | 12.52% |
| Copper | $1.4510 | $1.4330 | $0.02 | -1.19% | 2.91% |
| Silver | $14.4500 | $14.4900 | -$0.04 | 15.00% | 28.29% |
| Corn | $3.5175 | $3.5025 | $0.02 | -7.19% | -13.57% |
| Crude oil (NYMEX) (per barrel) | $38.44 | $40.03 | -$1.59 | -13.81% | -13.81% |
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