Stocks suffered their biggest losses since early March today in the wake of the Obama administration's demands that General Motors (GM, news, msgs) and Chrysler Group redo their business plans or face possible bankruptcy.
The Dow Jones industrials ($INDU) were down 254 points, or 3.3%, to 7,522. The Standard & Poor's 500 Index ($INX.X) was off 28 points, or 3.5%, to 788, and the Nasdaq Composite Index ($COMPX) slumped 43 points, or 2.8%, to 1,502.
The Dow and S&P had their worst point losses since March 5; the Nasdaq's decline was its worst since Feb. 10.
A bit of good news in the sell-off was that the Dow had been down as much as 339 points just before 3 p.m. ET and recovered more than 84 points in the last hour or so of trading, with IBM (IBM, news, msgs) leading the way. Down as much as 2.5% right after the open, Big Blue steadily moved higher all day and closed up 0.4% to $94.52.
But Tuesday may bring some relief after the ugly selling. Stocks in Japan, which had fallen heavily on Monday, were higher on Tuesday. The Nikkei 225 Index($JP:N225) was up 114 points, or 1.4%, to 83,52 in early trading. Futures trading suggests U.S. stocks will open higher on Tuesday.
GM, down 25.4% to $2.70, was the biggest percentage loser among the 30 Dow stocks as concern mounted that the auto giant and Chrysler might be forced into bankruptcy.
The Wall Street Journal said the Obama administration favored splitting GM into two companies, one that had the two most viable operations: Cadillac and Chevrolet. The rest of GM would go into a so-called "bad company" whose assets would be sold off.
Maryann Keller, one of the most respected auto analysts, said she liked the idea of reducing GM to its most profitable brands. "At least the U.S. has a chance for a viable auto industry," she told CNBC this afternoon.
Concern over what the automobile industry might ultimately look like was just one factor that weighed on stocks. The others were:
- Weakness in financial stocks after Treasury Secretary Tim Geithner said Sunday that some banks may require more financial aid from the government. Bank of America (BAC, news, msgs) was off 17.9% to $6.03. Citigroup (C, news, msgs) fell 11.8% to $2.31.
- Slumping energy stocks after crude oil fell to $48.41 a barrel in New York, a decline of 7.6% and the lowest close for crude since March 16. Exxon Mobil (XOM, news, msgs) dropped 1.9% to $68.63. Chevron (CVX, news, msgs) fell 3.1% to $66.80.
- Worries about how long the recession will last after Manitowoc, a manufacturer of construction cranes, withdrew its full-year profit guidance because of slumping sales. Manitowoc (MTW, news, msgs) was off 33.4% to $3.07 and weighed on other construction equipment stocks, especially Caterpillar (CAT, news, msgs), which fell 9.3% to $27.53 and subtracted nearly 23 points from the Dow.
While GM was the biggest percentage loser among the Dow stocks, 88 points of the blue-chip index's loss came from five stocks: Boeing (BA, news, msgs), JPMorgan Chase (JPM, news, msgs), United Technologies (UTX, news, msgs), Chevron and Caterpillar.
Only two Dow stocks finished higher: IBM and Johnson & Johnson (JNJ, news, msgs), up 0.3% to $53.01.
Meanwhile, only 33 S&P 500 stocks closed up on the day, along with just eight stocks in the Nasdaq-100 Index ($NDX.X), which tracks the largest Nasdaq stocks. The index was down 31 points, 2.5%, to 1,221.
Where the markets stand
The market goes into Tuesday, the last day of the first quarter, with the Dow up 6.5% on the month but down 14.3% for the quarter. The S&P is up 7.1% for the month but 12.8% for the quarter. The Nasdaq is up 9% for March and down 4.8%.The Dow and the S&P closed slightly under their 50-day moving averages; the Nasdaq finished 38 points above its 50-day moving average. Technical analysts have been using the relationships between the indexes and their 50-day averages as gauges of investor confidence.
If the Dow maintains its gain for the month, it would be its first after six months of losses. The gains for the S&P 500 and Nasdaq would be their first since December.
As ugly as today's sell-off was, remember this: The Dow is still up 14.9% from its March 9 closing low, with the S&P 500 up 16.4% and the Nasdaq up 18.4%. The big winner so far in this uptick is the Russell 2000 Index ($RUT.X), up 21.2%.
| Mon. | Fri. | Chg. | Month chg. | YTD chg. | |
|---|---|---|---|---|---|
| Crude oil (NYMEX) (per barrel) | $48.41 | $52.38 | -$3.97 | 8.15% | 8.54% |
| Heating oil (per gallon) | $1.3426 | $1.4328 | -$0.0902 | 6.06% | -4.49% |
| Natural gas (per million BTU) | $3.7390 | $3.6310 | $0.1080 | -10.93% | -33.49% |
| Unleaded gasoline (per gallon) | $1.3799 | $1.4879 | -$0.1080 | 7.75% | 36.87% |
Disney will put content on YouTube
Google's (GOOG, news, msgs) YouTube, as part of its battle to lure more premium content to its site, signed a deal with (WALT DISNEY, news, msgs) to offer clips from ABC and ESPN across its popular video-sharing service.The arrangement entails both companies sharing revenue from advertising shown along with short videos, such as sports highlights. But it does not include full-length TV shows or sporting events, which are increasingly popular online and YouTube is struggling to attract.
Stock Charts (Year)
Walt Disney
Under the agreement, Disney will be able to sell ads against its content, sharing the revenue with YouTube, and to test pre-roll ads, which Google has typically reserved for long-form content. Disney also will be able to feature ESPN's video player on its video channel. That will give Disney more control over how its content is viewed than YouTube has given its partners in the past.
Google shares were up 0.5% after hours to $344.25. The shares had fallen 1.4% to $34269 in regular Nasdaq trading. Disney, which had fallen 4% to $17.85 in regular trading, was up 0.8% to $18 after hours.
Is bankruptcy close for GM and Chrysler?
A chapter 11 bankruptcy was looking like real possibilities for GM and Chrysler, now that the Obama administration's auto task force has determined that both would have trouble surviving as standalone companies.The task force spent a month analyzing the two automakers, concluding that "both (GM and Chrysler) have unsustainable liabilities and both need a fresh start. Their best chance at success may well require utilizing the bankruptcy code in a quick and surgical way," the White House said in its statement outlining the plan.
"My administration will offer GM and Chrysler a limited period of time to work with creditors, unions and other stakeholders to fundamentally restructure in a way that would justify an investment of additional tax dollars," President Barack Obama said at a news conference this morning.
GM is burning more cash than it earns, the task force wrote in its report, failing a key test of viability. Bankruptcy for GM would wipe out all ordinary shareholders in the company and leave bondholders to receive pennies on the dollar in relation to the face value of bonds. The White House was hoping for a "surgical" bankruptcy for GM, although many bankruptcy lawyers were saying "quick" was not going to happen.
The task force concluded that, if Chrysler's deal with Italian automaker Fiat (FIATY, news, msgs) does not go through within 30 days, Chrysler should not receive any more aid. Chrysler said today that it has agreed to a framework for a global alliance with Fiat, the "next step in working towards a definitive agreement" with the Italian automaker.
Ford Motor (F, news, msgs) has said it does not need any government funds. Ford was down 2.8% to $2.76.
Stock Charts (Year)
General Motors
The uncertainty about GM and Chrysler was hitting related stocks. U.S. Steel (X, news, msgs) was down 11.5% to $21.55. Alcoa (AA, news, msgs) tumbled 14.2% to $6.69. American Axle (AXL, news, msgs) was down 22.2% to $1.37.
And foreign automakers were also suffering from the American woes. Toyota Motor (TM, news, msgs) was off 3.1% to $63.53 in New York; Honda (HMC, news, msgs) was down 5.4% to $23.39, and Nissan (NSANY, news, msgs) fell 7.6% to $7.30.
GM CEO steps down
Rick Wagoner will step down from his position as chairman and chief executive officer of GM and will be replaced by Chief Operating Officer Fritz Henderson."On Friday I was in Washington for a meeting with administration officials. In the course of that meeting, they requested that I 'step aside' as CEO of GM, and so I have," Wagoner said in a statement.
Wagoner had been at GM for 32 years, running the company since 2000. He earned $14.9 million in total compensation last year. While at the helm, he cut the company's U.S. work force to about 92,000 from 177,000, closed unproductive plants and got rid of the Oldsmobile brand. But GM lost $82 billion in the past four years.
"If GM is to be allowed to survive, it needs someone with a totally fresh mind, someone untainted by decades of failed management and strategy," Howard Wheeldon, senior strategist at BGC Partners in London, told MarketWatch.
Another expert agreed. "The bailout loans aren't hugely popular, and that's creating an issue for Obama," Jeremy Anwyl, CEO of Edmunds.com, told Bloomberg News. "One way to make the loans more palatable is to be able to say the person responsible is no longer with GM."
GM has received $13.4 billion in loans from the federal government to help keep the company afloat. The automaker said last month it needs up to $16.6 billion in additional aid to survive.
Defaults and delinquencies rise
Many Americans are struggling to make their mortgage payments, according to the Federal Housing Administration.About 7.5% of FHA loans were "seriously delinquent" in February, a 6.2% jump from the number in February 2008. The FHA considers a loan "seriously delinquent" if it is 90 days or more overdue.
Meanwhile, approximately 250,000 homeowners received mortgage modifications or repayment plans from their lenders in February, according to Hope Now, the coalition of lenders, advocacy groups and investors helping fight foreclosure for Americans.
Still, the number of foreclosures that began in February rose to 243,000 from 217,000 in January. About 87,000 homes were repossessed by banks last month, a 28% surge from January's completed foreclosures.
Since the mortgage meltdown hit in July 2007, 1,395,044 homes have been lost.
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More economic reports on tap
Investors have more economic reports to digest this week.The Conference Board will release its report on consumer confidence on Tuesday, and economists expect a slight improvement. The index will likely increase to a reading of 27 in March, after hitting an all-time low of 25 in February.
The S&P/Case-Shiller Home Price Index will also come out Tuesday. Economists expect the 20-city index to decline slightly to a reading of 18.5% in February.
Economists are looking for the National Association of Realtors' Pending Home Sales Index to have fallen 2% in February from a decline of 7.7% in January.
Economy likely to shed more jobs in March
While there have been some better-than-expected economic reports over the past few weeks, Friday's jobs report from the Labor Department is not likely to be anything to cheer about.Economists expect a loss of 688,000 jobs in March, with the unemployment rate ticking up to 8.5% after hitting 8.1% in February. An 8.5% rate would be the highest level since 1983 but still not as high as the 10.8% rate seen in 1982.
In February, the economy shed 651,000 jobs; it was the 14th straight month of job declines. In fact, job losses since December 2007, when the economy officially entered a recession, total an estimated 4.4 million.
One observer believes the jobs picture might be improving, ever so slightly.
"The general tone of the labor market seems a bit less horrendous than in the December-February period, as layoff announcements have not been quite as plentiful and anecdotal reports also have been suggestive of a possible bottoming," wrote Stephen Stanley, chief economist for RBS Greenwich Capital, in a note to clients.
But Stanley was hardly optimistic.
"It will take a much sharper slowdown in the pace of contraction of employment to fundamentally alter consumer attitudes and the outlook for the economy," he wrote.
Andrew Rosenbaum contributed to this report.
| Mon. | Fri. | Chg. | Month chg. | YTD chg. | |
|---|---|---|---|---|---|
| Treasurys | |||||
| 13-week Treasury bill | 0.120% | 0.125% | -0.005 | -52.00% | 4.35% |
| 5-year Treasury note yield | 1.727% | 1.799% | -0.072 | -14.50% | 11.35% |
| 10-year Treasury note yield | 2.714% | 2.761% | -0.047 | -10.75% | 20.94% |
| 30-year Treasury bond yield | 3.602% | 3.618% | -0.016 | -3.22% | 33.85% |
| Currencies | |||||
| U.S. Dollar Index | 86.300 | 85.580 | 0.720 | -2.10% | 5.05% |
| British pound in dollars | $1.4273 | $1.4251 | 0.0022 | -0.34% | -3.13% |
| Dollar in British pounds | £0.7006 | £0.7017 | -0.0011 | 0.34% | 3.23% |
| Euro in dollars | $1.3208 | $1.3231 | -0.0023 | 4.16% | -5.72% |
| Dollar in euros | € 0.7571 | € 0.7558 | 0.0013 | -3.99% | 6.07% |
| Dollar in yen | 97.24 | 98.03 | -0.79 | -0.38% | 7.27% |
| Canadian dollar in U.S. dollars | $0.793 | $0.806 | -$0.0135 | 0.90% | -3.09% |
| U.S. dollar in Canadian dollars | $1.263 | $1.240 | $0.0221 | -0.90% | 3.19% |
| Commodities | |||||
| Gold | $917.70 | $925.30 | -$7.60 | -2.63% | 3.78% |
| Copper | $1.7660 | $1.8360 | -$0.07 | 14.79% | 25.25% |
| Silver | $13.0330 | $13.2630 | -$0.23 | -0.59% | 17.42% |
| Corn | $3.8625 | $3.8700 | -$0.01 | 10.12% | -5.10% |
| Crude oil (NYMEX) (per barrel) | $48.41 | $52.38 | -$3.97 | 8.15% | 8.54% |
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