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Stocks Land Lower to Close Wild Trading Day

Published: Monday, 7 Jul 2008 | 4:08 PM ET

Text Size

By: Jeff Cox,
Special to CNBC.com

Stocks whipped back and forth Monday, finally landing in negative territory following a seesaw day dominated by a large dumping of financial shares and a drop in oil that staggered large energy producers.

Investors went bargain-hunting for banks in the last half-hour of trading, but still left the major indexes lower. The market started with a 100-point rally in the Dow, which then fell to nearly 150 points negative in afternoon trading. The Dow finished off about 0.5 percent, while the S&P neared a 1 percent drop and the tech barometer Nasdaq edged lower.

Major U.S. Indexes

.DJIA

.NCOMP

.SPX

The wishy-washy trading left market-watchers looking for long-term direction dissatisfied.

"What we're seeing here is the beginning of a new phase in the bear market," Gordon Charlop, of Rosenblatt Securities, said on CNBC. "What we're seeing now is demand destruction. It's going to be reflected in quarterly corporate earnings reports and it's going to be reflected in retailer earnings about back to school."

The day also saw a dramatic breaking of the four-month trend of oil and stocks moving in opposite directions. Oil dropped below $142 a barrel, yet stocks groped for direction. Oil closed down just more than $4, but electronic trading later pared some of those losses.

The inability of stocks to move positive while oil fell was seen as ominous for the economy.

"I see this as an increased probability of recession occurring here in the US," Ernie Ankrim, chief investment strategist at Russell Investment Group, said on CNBC. "The problem here is we saw oil come down and about the same time we saw a lot of other things go down."

A morning rally began as oil prices tumbled off record highs and investors showed optimism for the beginning of earnings season. But banks continued to be a sticking point for the market, and the major indexes fell into negative territory.

Long-Term Stock Pick Slideshow:

Fast Money's Trades for the Future

Freddie Mac [FRE Loading... () ] was one of the biggest weighs on the S&P, with the government-sponsored mortgage lender dropping more than 9 percent on investors concerns over its capital positions amid continued weakness in the housing market. Fannie Mae [FNM Loading... () ] also dropped sharply over the same issues.

But Fannie and Freddie finished off their lows for the day, which neared 20 percent at one point.

SunTrust [STI Loading... () ] also contributed to the downturn in banks after an analyst warned that the Atlanta-based institution was at risk from significant losses in its residential construction loan portfolio.

The market also slipped following comments from San Francisco Federal Reserve President Janet Yellen that Wall Street interpreted as friendly to an interest rate hike.

"There's all this talk about capital raising; that's going to feed on itself and it seems like it's never ending. Whenever you think it's done someone else comes out and says they think financials have to raise more and that's obviously going to dilute their share price," Neil Massa, senior U.S. trader at MFC Global Investment Management in Boston, told Reuters.

Energy stocks also dropped sharply as oil settled near $141 a barrel. Dow components Chevron [CVX Loading... () ] and ExxonMobil [XOM Loading... () ] led the sector lower.

Fear-selling was high as the Chicago Board Options Exchange's Volatility Index [VIX Loading... () ] gained more than 7 percent. Market experts have been looking at the Vix for a spike that might indicate a market capitulation, where stocks were so beaten down that a rally would be inevitable. Analysts are looking for a Vix reading in the 30s to indicate capitulation.

In corporate developments, the much-discussed merger between search giants Yahoo [YHOO Loading... () ] and Microsoft [MSFT Loading... () ] still has legs as corporate heads continue to talk. Financier Carl Icahn sent a letter to shareholders indicating he had spoken to Microsoft CEO Steve Ballmer, who is still interested in discussing a merger.

And Apple [AAPL Loading... () ] gained as its 3G phone debuts to much fanfare.

Some of Wall Street's mainstays were trying to move the market in a positive direction.

In merger and acquisition news, NBC Universal, the parent of CNBC, along with private equity firms Blackstone Group and Bain Capital, said Sunday it will buy The Weather Channel from Landmark Communications. Landmark will receive $3.5 billion.

NBC CEO Jeff Zucker said on CNBC that the move amplifies the network's stable of strong news programming. NBC is owned by General Electric [GE Loading... () ], which reports earnings Friday.

"You think about adding the Weather Channel to that, you really see the news and information strength of this company," Zucker said. "That's what I'm really proud of."