Stocks are holding well below the unchanged line during mid-afternoon trading on Monday, although selling pressure has waned from earlier in the day. The weakness comes as investors respond to U.S. government's refusal to accept the restructuring plans offered by General Motors (GM) and Chrysler.
President Obama and his auto task force have indicated that General Motors 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.
Kiddoo said the auto news has to be pretty well anticipated given the rate of auto sales and predicts a forced bankruptcy would be positive long term. In terms of the broader market, Kiddoo said the bear market rally can continue, but he warned that it might not be for a couple of weeks.
Meanwhile, optimism surrounding the 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 have moved roughly sideways throughout the afternoon, lingering firmly in negative territory. The Dow is currently down 281.96 at 7,494.22, the Nasdaq is down 49.05 at 1,496.15 and the S&P 500 is down 30.27 at 785.67.
The steep loss by Dow comes as all thirty of the components of the blue chip index are moving lower on the day. Following the news of the rejected restructuring plan, General Motors is posting one of the widest losses.
Currently, shares of GM are down 21.8 percent on the day, pulling back well off the two-month closing high set in the previous session.
Bank of America (BAC) and Alcoa (AA) are also posting steep losses on the day, falling 16.5 percent and 14.9 percent, respectively.
Caterpillar (CAT), Citigroup (C), and American Express (AXP) are among the other Dow components that are posting notable losses on the day.
While steel and banking stocks continue to turn in some of the day's worst performances, housing stocks are also suffering notable weakness on the day.
With a 6.8 percent decline, the Philadelphia Housing Index is pulling back further off the nearly two-month closing high it set on Thursday.
Airline, brokerage, and oil services stocks are also suffering considerable weakness on the session. The Amex Airline Index is down 6.5 percent, while the Amex Securities Broker/Dealer Index and the Philadelphia Oil Services Index are down 6.4 percent and 5.3 percent, respectively.
Due to the extreme weakness in the broader markets, most of the other major sector indices are also posting notable losses on Monday.
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 ended 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 have moved back to the upside but remain off their best levels of the day. Subsequently, the yield on the 10-year note is down 4.2 basis points at 2.719 percent after hitting a low of 2.681 percent.
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