Dow Industrials Off Nearly 500 Points After Gloomy Global Data
NEW YORK (MarketWatch) -- Energy and financial stocks paced a sharp drop in U.S. equity prices Monday, as economic reports from around the world compounded anxiety about a global recession.
In the final hour of trading, the Dow Jones Industrial Average was down 494 points, or 5.6%, at a session low of 8,331.
"There are still concerns about how deep, how long and widespread this global recession will be," said Sam Stovall, senior investment strategist at Standard & Poor's. "As we head into the [November] employment report on Friday, it's not looking good."
Stocks fell further after a report showed the manufacturing sector of the U.S. economy slumped at the fastest pace in 27 years in November.
The Standard & Poor's 500 index fell 54 points, or 6.2%, to 841. By sectors, energy fell the hardest, slumping more than 10%, followed by financial issues, off 9%, and consumer discretionary, down 7%.
Yields on 10-year Treasury bonds , which are used to benchmark mortgage rates, slumped to 2.706%, their lowest on record.
Among stocks linked to a dimming outlook for global growth, shares of aluminum giant Alcoa Inc. slumped nearly 10%, equipment-maker Caterpillar fell 7%, and global conglomerate General Electric was down 7%.
After nearly regaining half of its value last week, Citigroup fell 15%. A Citi fund is buying a Spanish highway-operating firm for more than $10 billion.
Bank of America fell more than 11%, and J. P. Morgan Chase lost 10%, amid broad weakness in the banking sector.
Post-rally
Some analysts noted that Monday's weakness came after five consecutive sessions of gains.
"In a still bearish mindset, investors are not only digesting their Thanksgiving meals, but also recent gains in the market," S&P's Stovall said.
"The economic data is not looking good," he said. "But since it's already out there in print, who doesn't know it already? Still, this market remains more successful at stringing negative days than it has positive days."
Among other Dow components, shares of Chevron and Exxon Mobil both slumped nearly 5%. Crude oil futures plunged 8% to trade below $50 a barrel, amid economic concerns and as OPEC chose to postpone further production cuts.
General Motors erased early gains to fall 8%. The automaker, ahead of a presentation to Congress on how they would use a government loan, is trying to get debt holders to swap their debt securities for equity, according to a report in The Wall Street Journal.
Outside the Dow, Ford Motor Co. rose more than 2% after saying it is considering the sale of its Volvo brand.
The technology-heavy Nasdaq Composite slumped 87 points, or 5.7%, to 1,448.
Conflicting reports surrounding a possible deal for Yahoo Inc. Britain's Sunday Times reported that Microsoft was offering $20 billion for Yahoo's search business, but the All Things Digital blog quoted sources as saying the purported deal was "total fiction."
Yahoo shares slumped 3%.
Elsewhere, breast-implant maker Mentor Corp. jumped 89% after Johnson & Johnson said it would pay about $1.1 billion, or $31 a share, to buy the company.
Already hit by the weak economic data, bond yields plunged further after Federal Reserve Chairman Ben Bernanke acknowledged that the while the U.S. economy is "under considerable stress", the central bank can buy Treasury notes and bonds or agency bonds in a bid to drive yields lower and "spur aggregate demand."
Holiday sales
Mixed reports came out of the holiday shopping season. The National Retail Federation estimated that shoppers spent 7.2% more than last year, but another poll found that 70% of consumers only purchased deeply-discounted merchandise.
Quarterly reports are also due from retailers such as Sears Holding Corp. and Staples on Tuesday, Jo-Ann Stores Inc. and Aeropostale on Wednesday, as well as Guess and Wiliams-Sonoma on Thursday.
Some strategists also cited concerns that investors in hedge funds are pulling out more of their money before the end of the year, forcing funds to liquidate assets and pressuring the overall market.
According to Marc Pado, market strategist at Cantor Fitzgerald, estimates of so-called hedge fund redemptions call for up to $700 billion that could be withdrawn for the end of 2008.
"This has been, in my opinion, the main impetus for the heavy bouts of selling," Pado said in a note. "As we turn the calendar to December, we are likely seeing some of that sell-side pressure."
Global gloom
The Institute for Supply Management said its manufacturing index fell to 36.2% in November from 38.9% in October. It was the lowest reading since early 1982. Economists were expecting the index to fall to 37%. Readings under 50% indicate most firms reported worsening conditions.
Earlier, manufacturing gauges in China, the euro zone and the U.K. each showed significant drops, with the Chinese and British gauges dropping to record lows. The European Central Bank and the Bank of England are expected to cut interest rates further at their policy meetings Thursday.
"Although weaker [purchasing managers index] readings were expected for these economies, the magnitude of the declines was surprising, implying that activity slowed very sharply in the latest month," said Nick Verdi, an economist at Barclays Capital.
Also moving shares was a report from the Semiconductor Industry Association showing a larger-than-forecast slump in October sales. Analysts at J.P. Morgan said a shortfall of unit sales was to blame, and pricing was above expectations.
In global equity action, the Nikkei 225 dropped 1.3% in Tokyo, and the FTSE 100 fell 3.6% in London.
By Nick Godt