NEW YORK (Reuters) - Stocks tumbled on Monday as investors worried a $700 billion bailout for the financial sector may not resuscitate a slumping economy, while a record spike in oil prices renewed concern about consumer spending.
Banks, home builders and big manufacturers were among the biggest decliners as negotiations over the government’s rescue plan to mop up bad mortgage debt on banks’ balance sheets heated up in Washington.
Investors also dumped consumer-oriented companies and airlines as oil surged $16.37 to settle at $120.92 a barrel, its biggest one-day jump on record. A sharp fall in the dollar added to oil’s gains.
A Wall Street analyst downgrade hit shares of JPMorgan Chase, the No 3 U.S. bank, which fell 13.3 percent, making it the top drag on both the Dow and the S&P 500. Wells Fargo dropped 11.6 percent. For details, see
The S&P financial index shed 8.5 percent, while an index of airline stocks fell 9.4 percent.
Monday’s market swoon wiped out nearly all the gains seen on Friday when the bailout announcement sparked Wall Street’s best one-day advance since 1987. Only 2 of the Nasdaq 100 stocks end higher.
Investors cited uncertainties about the rescue plan’s details and concern about whether it would provide a lift for the U.S. economy, which many fear is already in recession.
“Here it is Monday and people are waking up from a gigantic hangover, trying to figure out what’s next,” said John Schloegel, vice president of investment strategies for Capital Cities Asset Management in Austin, Texas.
“There’s pain ahead for the economy, pain for the consumer, pain at the gas pump,” he said. “And we’re getting hit with a double whammy today with commodities moving higher.”
The Dow Jones industrial average dropped 372.75 points, or 3.27 percent, to 11,015.69. The Standard & Poor’s 500 Index slid 47.99 points, or 3.82 percent, to 1,207.09. The Nasdaq Composite Index fell 94.92 points, or 4.17 percent, to 2,178.98.
The Bush administration is pressing Congress to approve one of the costliest U.S. bailouts for financial companies since the Great Depression, but debate about the particulars of the plan continues on Capitol Hill.
A top Congressional Democrat on Monday said Treasury had agreed to take an equity stake in the firms that unload assets under the rescue plan, though other details remain unclear.
“There is lingering uncertainty about the overall economy despite the moves to shore up the financial markets,” said Michael James, senior trader at regional investment bank Wedbush Morgan in Los Angeles.
“Clearly the weakness in the financial markets has been part of the drag on the economy in the first nine months, but it has not been the only drag. Merely shoring up the weak financial markets is not necessarily a salve to the overall economy’s problems.”
With oil prices up sharply, investors sold shares of consumer-oriented companies, including Procter & Gamble, down 3.3 percent at $68.04. Shares of Target Corp, the No. 2 U.S. discount retailer, dropped 6.6 percent to $49.80 after Lazard Capital Markets cut the stock to ”hold“ from buy.” Earlier during the session, U.S. oil futures prices shot up as high as $130 a barrel.
Uncertainty about the bailout overshadowed news that Japan’s largest bank, Mitsubishi UFJ Financial Group, planned to buy a stake in Wall Street bank Morgan Stanley.
Goldman Sachs and Morgan Stanley are abandoning their investment bank model of two decades to become bank holding companies regulated by the Federal Reserve.
Morgan Stanley shares fell 0.4 percent to $27.09 after earlier adding more than 10 percent, while Goldman Sachs shares dropped 7 percent to $120.78.
JPMorgan Chase shares fell 13.3 percent to $40.80 while Wells Fargo shares fell 11.6 percent to $35.18.
Among home builders, shares of Hovnanian Enterprises declined 6.5 percent to $8.46.
Meanwhile, shares of Caterpillar Inc , an economic bellwether and a Dow component, lost 2.8 percent to $64.60.
Kraft Foods Inc, a new member of the 30 Dow industrials, effective at Monday’s opening bell, also dropped 4.6 percent to $33.09.
On Nasdaq, shares of Apple fell 7 percent to $131.05 after JPMorgan cut its price target on the iPod and iPhone maker’s stock.
About 1.27 billion shares changed hands, below last year’s estimated daily average of roughly 1.90 billion, on the New York Stock Exchange, while on Nasdaq, about 1.93 billion shares traded, also below last year’s daily average of 2.17 billion.
Declining stocks outnumbered advancing ones on the NYSE by more than 4 to 1. On the Nasdaq, decliners beat advancers by about 3.5 to 1.
Additional reporting by Ellis Mnyandu and Kristina Cooke; Editing by Jan Paschal