Financial stocks held the market underwater Monday and will continue to figure in Tuesday's trading as investors struggle to sort out what the credit mess means for Wall Street and the banking industry.
A batch of earnings are due Tuesday, including Archer-Daniels, Emerson, Tenet Healthcare, Valero, Allergan, Molson Coors, and Chesapeake Energy.
Fed Chairman Ben Bernanke speaks at 1:40 p.m. ET at ACCION Texas Summit on Microfinance in San Antonio, Texas. Traders will watch for headlines but they expect little news and the key event of the week will be Bernanke's testimony Thursday before the congressional Joint Economics Committee. There his comments will be watched carefully and could contain hints as to his view of the economic news since the last FOMC meeting. Former Federal Reserve Chairman Alan Greenspan, meanwhile, speaks in Tokyo Tuesday.
President Bush holds a White House Forum on Trade and Investment with top business leaders. CNBC senior economic correspondent Steve Liesman will report from the event. President Bush also meets with French President Nicolas Sarkozy Tuesday evening.
Some bright spots in Monday's market include tech darling Google, which continues to dance to its own tune and is zipping up and away from the $700 mark as quickly as it hit it. Google unveiled a new phone product, and its stock gained 2%.
Its hard to keep those utilities stocks down. The defensive utilities continue to attract buyers, rising 1.16%, the best performers of the day. Some winners were also found in the health care sector -- Wyeth, Amgen, Allergan for instance.
The Dow closed at 14,543, or 51 points lower, after dipping down as much as 148 points. The NASDAQ was off 15, or 0.5% to 2795, and the S&P 500 slid 7 to 1502.
"The one interesting thing is that the market had every excuse to get slammed, really slammed, and it didn't do it. You may take a little solace away form that if you're looking for the silver lining in the big dark cloud," said John O'Donoghue of Cowen.
O'Donoghue pointed to some of the winners were also in the biotech sector today. "It's more sort of you pick your spots and you figure out where you want to be. What I'm looking at is the winners are going to keep being the winners into the year end and then you reassess," he said.
Investors responded to the news from Citigroup on Monday, by pounding the rest of the banking sector and broker stocks. Citigroup on Sunday said CEO Chuck Prince was leaving and that he would be replaced on an interim basis by former U.S. Treasury Secretary Robert Rubin who will act as chairman, and Win Bischoff, head of Citigroup's European operations, who will be interim CEO.
Citigroup also revealed it would write off another $8 to $11 billion in subprime-related securities. That write down has Wall Street spinning with rumors of what other firms might have more writedowns of their own. Once more, Goldman Sachs was in the rumor mill and it denied rumors it was hiding billions in losses. That speculation weighed on the market and the financial stocks for part of the day. The S&P financial sector ended the day 1.4% lower.
J.P. Morgan analyst Christopher Flanagan, meanwhile, said on a conference call with clients Monday that write downs of losses from sub prime related securities could total $200 billion, and that financial institutions could be sitting on at least $60 billion in losses that are as yet undisclosed. In a Reuters report, Flanagan was quoted as saying "banks, brokers, mortgage and monoline insurers will bear the brunt of this loss recognition." No wonder there's a lot of fear out there.
And while we're getting negative, it's worth noting that the often negative Richard Bove actually had some nice things to say about Citigroup Monday. The Punk Ziegel analyst upped his rating on the stock to market perform from sell. He said investors would be cheered by Prince's departure and the second major write down will likely calm down fears of the unknown impacting the firm's capital. He did say Prince's resignation is a negative since he helped turn the company around.
Now more negatives. Natoxis Bleichroeder managing director John Roque was on "Fast Money" Monday and talked about his bearish outlook for the financials.
"With the financials, and this might be a bold call, or actually akin to what the semis were in 2000 when they broke down ... The street wasted a lot of energy and time trying to pick the bottom," he said. "The better thing to do is just to leave them alone. They are going to be underperformers for a long time."
Roque also said the financials now are about 18.5% of the S&P 500 market cap. Since 1990, the average has been 16% and since the late 1970s was 12%. He said now the group's leaders, particularly Citigroup, have had an important technical breakdown.
Roque was less negative on the market in general. He said the S&P 500 ran into resistance at 1550 and there's downside risk to 1450 but for now the uptrend is holding.
The pain and moaning from the financial sector is bound to have some impact on your purse (or wallet) and the Fed Monday revealed some of what that is beginning to look like. Its quarterly survey of lending officers showed the credit squeeze prompted an unprecedented tightening of lending standards at major banks. Demand for loans also fell as standards tightened.
Miller Tabak's Tony Crescenzi broke out some of the key numbers in a note Monday afternoon. He said it should be no surprise that the percentage of banks that tightened subprime loans "considerably" or "somewhat" was 55.5% in October, compared to July. No bank eased standards. For prime mortgages, the figure was 40.8% compared to 14.3% in July. But only 4.1% of those said they tightened "considerably."
He called the tightening in standards for commercial real estate loans "worrisome" as 38.5% of banks raised standards.
Pumped Up Prices
Oil fell $1.95 per barrel or 2% to $93.98 but gasoline futures on the NYMEX rose, hitting $2.3811, a gain of 2.4%. Gasoline prices at the pump also rose to summertime levels and were above $3 per gallon for the first time since July. The government said gasoline prices over the last week rose $0.14 per gallon to $3.01 per gallon.
CNBC's Sharon Epperson will be reporting on energy today and what the latest reports say about heating oil, which closed at $2.5439 per gallon Monday, but not before hitting a new intraday record of $2.5885.
Wall Street's big deal making machine has ground to a slow crawl since the onset of the credit crunch, and there's lots of news about companies that now want to split apart to ramp up value. We've seen it before. When Wall Street's investment banking machine can't make matches, it undoes deals instead.
Look at the story that CNBC's David Faber was first to report on IACI. The company, run by Barry Diller, is expected to break into five separate publicly traded companies in an effort to extract more value from the parts.
Break up chat also surrounds Citigroup. CNBC's Charlie Gasparino has reported for months that the financial services supermarket could be or should be broken up.
And then there's Time Warner . Another scoop for Faber, who reported on CEO Richard Parsons exit plan Monday. Faber says Time Warner is working on a break up plan of its own.
The writers strike continues and television networks are starting to air repeats. Democratic Presidential candidate Sen. Barak Obama-Ill. said he supports the writers Monday.
Petrochina became the world's first trillion dollar company, surpassing Exxon as its shares started trading in Shanghai. Petrochina dwarfs Exxon, which has a market value of $488 billion.
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