Stocks slid on Monday on concerns over the sustainability of recent better-than-expected results from banks after Bank of America Corp reported a big increase in troubled loans.
Wall Street's tumble follows a six-week winning streak, the longest for the S&P 500 since 2007, with the Dow scoring its biggest gain over the period since 1938.
Dow component Bank of America
Further pressuring bank stocks, U.S. government officials have determined they can avoid asking Congress for more bank bailout funds by converting the existing loans to some U.S. banks into common stock, the New York Times reported. Such a move would dilute stockholders' stakes.
Shares of Citigroup Inc
The KBW bank index <.BKX> tumbled 12.3 percent.
When I took a look at the big banks, you saw a nice big positive earnings surprise, but I really questioned the quality of the earnings, said Fred Dickson, market strategist, director of retail research at D.A. Davidson & Co in Lake Oswego, Oregon. The reality is all the banks reported lower earnings than what they did a year ago.
The Dow Jones industrial average <.DJI> dropped 252.89 points, or 3.11 percent, to 7,878.44. The Standard & Poor's 500 Index <.SPX> slid 32.47 points, or 3.73 percent, to 837.13. The Nasdaq Composite Index <.IXIC> fell 59 points, or 3.53 percent, to 1,614.07.
The major indexes are on pace for their worst performance on a percentage basis since March 5, although the S&P 500 remains up nearly 24 percent from the bear market close on March 9, which was spurred by some positive comments from banks and hopes that data signaled the economic slump may be moderating.
The Chicago Board Options Exchange Volatility index <.VIX>, which measures implied volatility of the S&P 500 and is also known as the fear gauge, jumped 15.1 percent, its biggest one-day rise since January 20.
Adding to the negative tone, U.S. President Barack Obama said over the weekend the economy remains under strain and his top economic adviser tempered hopes for a speedy recovery.
On the merger front, Oracle Corp
Oracle shares shed 0.6 percent at $18.95, while Sun, the high-end computer server and software maker, surged 37 percent to $9.18.
Shares of PepsiCo Inc's
PepsiCo shares dipped 4 percent to $50.06.
(Reporting by Chuck Mikolajczak; editing by Jeffrey Benkoe)