U.S. Stocks Shift Sharply Lower; S&P Crosses Into Bear Turf
NEW YORK (MarketWatch) -- U.S. stocks turned steeply lower Monday afternoon, sending the S&P 500 into bear market territory, as worries banks would be slammed with more mortgage-related losses overtook earlier optimism sparked by a big drop in the price of crude.
"The advent of earnings season this week has investors on the defensive, especially as the beleaguered financial sector leads off," analysts at Action Economics said in a note. "Big declines in commodities today have also weighed on commodity based shares."
Selling in financial shares accelerated ahead of the kick-off of earnings reporting season, with the shares of mortgage giants such as Fannie Mae and Freddie Mac sliding about 20%.
Crude oil remained under heavy selling, with the August contract recently down $4.09 to $141.2 a barrel. .
The Dow Jones Industrial Average dipped 114.72 points, or 1%, to 11,173.82, with 23 of its 30 components trading lower, led by shares of drug manufacturer Merck & Co. Inc. , which fell 5.4% after the stock was downgraded to neutral from buy at UBS.
Also weighing on the Dow, shares of Walt Disney Co. fell 3% after Lehman Brothers downgraded the entertainment firm's stock.
The Dow remained supported by Alcoa Inc. , up 1.7%, ahead of the aluminum producer's earnings report after the close Tuesday.
Down more than 20% from its October high, the S&P 500 index fell 17.88 points, or 1.4%, to 1,244.91. Financials and energy slumped the most among the index's 10 industry groups with the former off 4.3% and the latter down 2.4%.
The technology-laden Nasdaq Composite dropped 25.59 points, or 1.1%, to 2,219.79.
By early afternoon, volume on the New York Stock Exchange neared 835 million shares, with declining issues running ahead of those advancing more than 3 to 1. On the Nasdaq, more than 570 million shares traded, and decliners topped advancers 2 to 1.
Treasury prices gained, with the yield on the 10-year note dropping to 3.9%, as investors sought the safe haven of government bonds. .
Gold prices also fell, with futures for August delivery falling $4.80 to end at $928.80 an ounce. .
Big reversal
Stocks had opened sharply higher as crude-oil prices fell, helped by a stronger dollar , and an apparent easing of tensions between Iran and the West.
"One of the reasons for the stronger dollar is there is hope that the G8 will make a stronger case for stronger dollar, due to the fact that the global economy beginning to show signs of real stress due to higher oil prices," said Peter Cardillo, market economist at Avalon Partners, of the meeting of Group of Eight world leaders currently being held in Japan.
"This week's earnings results mark the official start of the earnings season, but outside of General Electric, investors are mainly focusing on the banks and the credit crisis," said Marc Pado, U.S. market strategist at Cantor Fitzgerald.
U.S. stocks ended lower during the holiday-shortened week, with the Dow Jones Industrial Average falling into bear-market territory.
Monday's economic calendar was light, with a speech from non-voting San Francisco Fed President Janet Yellen the highlight.
Active issues
The Journal also reported Merrill Lynch & Co. is inching closer to selling ownership stakes in investment manager BlackRock Inc. and information provider Bloomberg LP.
Shares of Merrill fell 3.7% and BlackRock issues declined 4%.
"The still-distressed state of balance sheets at banks and other financial intermediaries suggests the credit creation mechanism is likely to remain impaired for the near future, dulling the impact of Fed rate cuts on the economy," said Lehman Brothers analyst Zach Pandl.
General Electric Co.'s NBC Universal led a group buying the Weather Channel in what is expected to be a multibillion-dollar deal. Terms weren't disclosed.
Germany's Fresenius said it' going to buy APP Pharmaceuticals Inc. for up to $4.6 billion.
InBev announced a rival slate of directors for Anheuser-Busch Companies Inc. that includes Adolphus Busch IV, the uncle of the Budweiser maker's chief executive, August Busch IV.
Milwaukee bank Marshall & Ilsley Corp. warned of a provision of at least $900 million in the second quarter to cover loan losses from the slumping housing market.
Teva Pharmaceutical Industries Ltd. shares were as much as 6.8% lower in Tel Aviv after the company said that in a Phase III study, a 40-milligram dose of its Copaxone multiple-sclerosis treatment was no more effective in reducing the relapse rate than the approved 20 mg dose.
Overseas, the Nikkei 225 ended a 12-session losing run with a 0.9% rise. In London, the pan-European Dow Jones Stoxx 600 index jumped 1% to 282.43. .
By Kate Gibson