After moving sharply lower in early trading, stocks saw continued weakness throughout the trading day on Monday. While the major averages did not see much follow-through on their early downward move, they remained stuck firmly in negative territory.
The weakness in the markets came as investors responded to disappointing news regarding the auto industry as well as renewed concerns about the outlook for the financial sector. Some traders also looked to cash in on the gains seen in the three previous weeks.
Much of the selling pressure came as President Obama and his auto task force indicated that General Motors (GM) and Chrysler have not gone far enough in their restructuring plans and need to step up their efforts to reorganize in order to receive additional government aid.
While the administration will continue to provide operating funds for the next few weeks, it has given both GM and Chrysler a final deadline, threatening bankruptcy if the beleaguered auto giants do not significantly increase their efforts to restructure their business.
Additionally, at the request of the White House, Rick Wagoner has stepped down as chairman and CEO of General Motors, with Fritz Henderson, GM president and chief operating officer, set to replace Wagoner as CEO.
In an interview with RTT News, Ron Kiddoo, chief investment officer at Cozad Asset Management attributed the market's sharp sell off to uncertainty surrounding GM and Chrysler and the rally just running a little bit out of stream.
However, Kiddoo said the auto news should have been expected given the rate of auto sales and predicted that a forced bankruptcy would be positive in the long term.
In terms of the broader market, Kiddoo said the bear market rally could continue, but he warned that it might not be for a couple of weeks.
Financial stocks also experienced considerable weakness after Treasury Secretary Geithner suggested that more banks might need bailout funds.
Appearing on the Sunday talk shows, Geithner explained that the ongoing stress tests for the financial industry have shown many other banks need funds from the TARP, although he said there is only about $135 billion left in the bailout pool.
Meanwhile, optimism surrounding this week's G20 summit has waned, as investors fear that earlier hopes that the countries will agree to a coordinated fiscal boost appear to have been crushed by skepticism in many European governments.
The major averages regained some ground going into the close of trading, but they remained firmly negative. The Dow closed down 254.16 points or 3.3 percent at 7,522.02, the Nasdaq closed down 43.40 points or 2.8 percent at 1,501.80 and the S&P 500 closed down 28.41 points or 3.5 percent at 787.53.
With the concerns about the outlook for the financial sector, banking stocks turned in some of the market's worst performances. The Kbw Bank Index subsequently ended the session down 10.3 percent, moving towards the low end of a recent trading.
One of the worst performances in the sector came from Capital One Financial (COF), which plummeted 20.2 percent. With the decline, the stock ended the session well off the more than one-month closing high it set last Thursday.
Steel stocks also posted considerable losses on the session, with the Amex Steel Index closing down 8 percent after posting noteworthy gains last week. The pullback by the sector reflected concerns about the outlook for steel demand in light of the auto sector news.
Brokerage, housing, and electronic storage stocks also closed notably lower. The Amex Securities Broker/Dealer Index ended the session down 7.6 percent, while the Philadelphia Housing Index and the Amex Disk Drive Index fell 6 percent and 5.2 percent, respectively.
Reflecting broad based weakness in the markets, most of the other major sectors also showed significant declines over the course of the session. Some real estate, airline, and defense stocks posted notable losses.
Nearly all of the Dow components ended the session in negative territory, contributing to the steep loss posted by the blue chip index. Of the thirty Dow components, only IBM (IBM) and Johnson & Johnson (JNJ) ended the day modestly higher.
While GM helped to lead the Dow lower following the news out of Washington, falling 25.3 percent, Alcoa (AA) also showed a notable decline. The aluminum producer closed down 14.2 percent, pulling back further off the month and a half closing high it set last Thursday.
Banking stocks, Bank of America (BAC) and Citigroup (C) also posted steep losses on the day, closing down 17.9 percent and 11.8 percent, respectively.
American Express (AXP), JP Morgan (JPM), and Caterpillar (CAT) were among some of the other Dow components that posted steep losses.
In overseas trading, stock markets across the Asia-Pacific region closed lower on Monday, partly offsetting some recent gains. Japan's benchmark Nikkei 225 Index showed a notable downward move, ending the session down 4.5 percent.
Additionally, the major European markets also ended the session considerably lower. The U.K.'s FTSE 100 Index closed with a loss of 3.5 percent, while the French CAC 40 Index and the German DAX Index ended the session down 4.3 percent and 5.1 percent, respectively.
In the bond market, treasuries ultimately closed off their intraday highs, but held positive. Subsequently, the yield on the 10-year note closed down 4.7 basis points at 2.714 percent.
The economic calendar picks up on the final trading day of the month of March, with trading on Tuesday likely to be impacted by the release of reports on housing prices, consumer confidence, and activity in the Chicago-area manufacturing sector.
Additionally, Minneapolis Federal Reserve Bank President Gary Stern and Philadelphia Federal Reserve Bank President Charles Plosser are scheduled to speak at separate events.
On the earnings front, homebuilder Lennar Corp. (LEN) is among the companies due to release their quarterly results before the start of trading on Tuesday.
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