Stocks fell sharply Wednesday, led by financial and auto stocks after worrisome results from Morgan Stanley, FedEx and others. Regional banks also took a hit after Fifth Third cut its dividend.
The Dow Jones Industrial Average finished off 131.24, or 1.1 percent, at 12029.06, its lowest close in three months. The blue-chip index briefly slipped below 12000 -- the first time that's happened since March 18, when the market was reeling from the collapse of Bear Stearns.
The Nasdaq shed 1.1 percent and the S&P 500 fell 1 percent.
rose $2.67 a barrel to settle at $136.68 a barrel after the EIA reported that crude inventories shrunk by 1.2 million barrels last week, less than the 1.5 billion draw expected.
Stocks aren't see-sawing with the rise and fall of oil anymore. The market's more pressing concern is that the worst isn't over for banks and brokerages.
Still, there are rumblings in the market that the second-half recovery is still on, particularly as the market threatens to make a third test of the year's lows, after similar levels in January and March.
"A lot of the indications are pretty positive that the market is setting up for better response in the fall and into next year," said Bruce McCain, head of investment strategy at Key Private Bank, citing the stimulus checks and Fed rate cuts among the catalysts.
McCain says now is a good time to start positioning your portfolio for the recovery. His team is beefing up technology and consumer-discretionary positions, while maintaining energy positions and backing off the defensive stocks. They like programmable chip maker Xilinx and some of the usual tech suspects including Oracle and Cisco .
Morgan Stanley reported its profit plunged 56 percentdespite $1.43 billion of pretax gains from asset sales. Revenue dropped in nearly every business. The results from the second-largest U.S. investment bank beat expectations. The stock eked out a gain of 0.3 percent after taking a beating for most of the day amid amid concerns about the future.
The report is the third in this week's brokerage trilogy: Lehman Brothers on Monday reported a disappointing $2.8 billion loss. On Tuesday, Goldman Sachs , which has fared better than some of its rivals due to less exposure to the subprime mess, said its profit dropped 11 percent but beat expectations.
Goldman shares finished up 1.9 percent, while Lehman shed 1.4 percent.
Lehman is still on the hot seat -- and the temperature is rising -- as the firm has come under increasing pressureto either put itself up for sale or dramatically slash its workforce.
(What's behind today's selloff? Market strategists weigh in. Click on the video at left.)
Lehman CEO Richard Fuld jumped up Wednesday, saying the firm is not for sale and isn't mulling any such move.
Financials had rallied on Monday but it all went downhill from there as the earnings started pouring in and after Goldman slashed its price targets and earnings forecasts for a slew of banks, saying it doesn't expect the credit crisis to peak until next year.
It's not just the brokerages -- regional banks are also feeling the pain.
Fifth Third Bancorp shares plunged 27 percent after the regional bank announced that it would cut its dividend by 66 percentand raise additional capital.
Other regional banks also declined, including SunTrust and Regions Financial , which fell 9 and 11 percent, respectively.
Shares of MF Global plummeted 41 percent after the options broker on Tuesday projected a sharp drop in revenue and said it would raise another $300 million in fresh capital to pay off debt.
FedEx posted a loss that missed earnings estimatesand said that the environment for the next year would be difficult.
FedEx earnings are closely watched as a gauge of the economy as the packages it delivers represent sales from a wide variety of sectors.
FedEx shares slipped 1.5 percent.
General Motors fell 5.9 percent to its lowest close in more than 25 years, after CarMax, the nation's largest used-car retailer, said its earnings dropped 55 percent as wholesale prices for trucks and SUVs tumbled 25 percent-- about four times the normal rate -- in the quarter ended in May.
CarMax said the drop in truck prices was the worst in any segment in its 15-year history and suspended its prior guidance for the fiscal year.
Analyst comments added to the weight on GM and other auto makers. Deutsche Bank lowered its outlook for the sector, saying indicators suggest "recessionary levels" of demand would continue. Deutsche Bank and JPMorgan analysts warned GM could be forced to do some hefty borrowing.
Ford closed down 5.8 percent at $6.22.
(Are stocks under $10 a bargain or bust? Click here to see what the strategists say.)
Pfizer was among the few Dow gainers after the world's largest drug maker reached a settlement with India's Ranbaxy Laboratories that will allow Ranbaxy to begin selling a generic form of Pfizer's cholesterol buster Lipitor in 2011. In exchange, Ranbaxy has agreed to drop all patent litigation against Pfizer.
Boeing rose after the Government Accountability Office upheld Boeing's protest of a $35 billion Air Force contract awarded to Northrop Grumman and its European partner EADS, saying the Air Force should re-open the bidding and reimburse Boeing for its expenses.
Microsoft announced that it had purchased Navic Networks, a closely held television-advertising-technology company, but terms of the deal were not disclosed.
The Royal Bank of Scotland warned a steep selloff in stockscould be coming as central banks find their hands tied by inflation, the Telegraph reported.
Still to Come:
THURSDAY: Jobless claims; Philly Fed survey; leading indicators; natural gas inventories; Fed advisory panel meets to discuss credit-card regulation
Send comments to firstname.lastname@example.org.