Stocks are continuing to show weakness during early afternoon trading on Monday as investors continue to respond poorly to disappointing news from the auto industry and remain wary of what may transpire at the meeting of the G20.
President Obama and his auto task force have 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 is stepping down as chairman and CEO of General Motors, with Fritz Henderson, GM president and chief operating officer, set to replace Wagoner as CEO.
In remarks at the White House, President Obama said that the auto industry woes are the result of a failure of leadership. He stressed that while the industry will not be allowed to vanish, the companies need to show considerable restructuring efforts before more money will be given to them.
In order to help the companies along, Obama's administration is offering GM and Chrysler limited time to work with creditors, unions, and stakeholders to develop plans to restructure.
While Chrysler and GM are very different companies with very different paths forward, both need a fresh start to implement the restructuring plan they develop, Obama said. That may mean using our bankruptcy code as a mechanism to help them restructure quickly and emerge stronger.
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.
In related news, the British police have arrested five people, including two women, on suspicion that they were plotting to use explosives to disrupt the G20 summit of world leaders, due to be held in London on April 2.
The Britons, all under the age of 25, were detained with weapons and material relating to political ideology at Plymouth. Although not affiliated with any terrorist organization, the political activists were being held under provisions of the Terrorism Act, the police said.
The major averages have moved off their worst levels of the day in recent trading, although they remain firmly negative. The Dow is currently down 262.20 at 7,513.98, the Nasdaq is down 47.69 at 1,497.51 and the S&P 500 is down 27.13 at 788.81.
With the substantial losses being suffered by the broader markets, the vast majority of the major sectors are showing steep declines on the day. Steel stocks are showing some of the worst performances amid concerns about demand.
The losses by steel stocks are contributing to a 8.2 percent decline by the Amex Steel Index, which is pulling back further off the one-month closing high that it set last Thursday. However, the index remains well off the three-month closing low it set earlier this month.
The weakness among steel stocks is partly due to worries about the outlook for the auto industry and concerns that a potential bankruptcy filing by either GM or Chrysler could negatively impact steel demand.
Significant weakness is also visible among banking stocks, as reflected by the 6.8 percent loss currently being shown by the Kbw Bank Index. The weakness in the sector comes after Treasury Secretary Geithner said some banks could need additional assistance
Housing, airline, and electronic storage stocks are also posting considerable losses on the day. The Philadelphia Housing Index is down 5.7 percent, while the Amex Airline and Amex Disk Drive Indices are posting losses of 5.2 percent and 4.9 percent, respectively.
Stocks In The News
Lincoln National Corp. (LNC) is suffering a 36.5 percent loss on the day, pulling the stock well off the one-month closing high it hit in the previous session.
The loss by Lincoln National comes after the company revealed that it has decided to voluntarily withdraw its application to participate in the Federal Deposit Insurance Corp.'s Temporary Liquidity Guarantee Program. The company said it does not believe it qualifies under the current provisions of the program.
Additionally, Manitowoc (MTW) is down 32.8 percent on the day after the company it is withdrawing its previous guidance for full year 2009, citing the continued impact of the global recession on its business.
Meanwhile, Fifth Third Bancorp (FITB) is bucking the downtrend with a gain of 13.2 percent. The gain comes after Fifth Third said it has agreed to sell a 51 percent interest in its processing business to Advent International for $561 million in cash.
In overseas trading, stock markets across the Asia-Pacific region closed lower on Monday, giving back some recent gains. Japan's benchmark Nikkei 225 Index showed a notable decline, ending the session down 4.5 percent.
The major European markets are also showing considerable weakness. The U.K.'s FTSE 100 Index is posting a loss of 3.5 percent, while the French CAC 40 Index and the German DAX Index are down 4.3 percent and 5.1 percent, respectively.
In the bond market, treasuries have moved well off their best levels of the day, although the benchmark 10-year note remains modestly positive. Subsequently, the yield on the 10-year note is down 1.5 basis points at 2.746 percent after hitting a low of 2.681 percent.
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