Tuesday has all the makings of another choppy session with little economic data but more fretting about the financial sector and plenty of earnings news.
Financials in Focus
Financial stocks were stung Monday by continued fears of further trouble and writedowns at financial institutions. Those stocks should again be in focus Tuesday as investors assess surprise after-the-bell news from Merrill Lynch that it is issuing $8.5 billion in new equity and selling $30 billion in mortgage assets in a fire sale.
Monday started off weak for financial issues. News of two more bank failures late Friday added to negative sentiment, as did an IMF report Monday predicting that continuing problems in the credit and housing markets would hurt financial companies.
"A lot of people basically stepped back here," said Patrick Boyle, managing director at LaBranche Financial Services. "We've seen more long sellers than short sellers in the last few days."
"There still seems to be a big time concern around these financial stocks," said Boyle just before Monday's closing bell. The S&P financial sector tumbled nearly 4.6 percent, the worst performing sector.
He said money was going into Treasurys and oil, but if "oil was a big play in the tape, it would have been much higher."
Oil rose $1.47 per barrel or 1.2 percent to $124.73, lifted by new concerns about Nigeria's oil supply. Comments from Iran's president that the country had expanded its nuclear program also added support. Iranian President Mahmoud Ahmadinejad also told NBC Nightly News anchor Brian Williams that Iran would react positively to a genuine shift in position from the U.S., something traders will be watching longer term, said John Kilduff, senior vice president of M.F. Global.
The Dow was down 239 or 2.1 percent to 11,131 and the S&P 500 was down 23 or 1.9 percent to 1234. The dollar slid 0.28 percent against the euro and 0.40 percent against the yen.
The 10-year Treasury added 24/32, to 98-27/32, lowering its yield to 4.018 percent.
The stock of Merrill Lynch was down more than 11 percent during the regular session Monday, and traders said it was hounded by rumors of more potential writedowns.
Merrill, after the bell, announced a sweeping plan to repair its balance sheet and did say it was planning to write down another $5.7 billion in the third quarter.
Merrill's is selling $8.5 billion in new shares. Singapore's Temasek Holdings, already a stake holder, will purchase $3.4 billion of common in the public offering.
Merrill also unloaded some of its most toxic securities, reducing its exposure to ABS CDOs to $8.8 billion from $19.9 billion.
Merrill said it would sell $30.6 billion gross notional amount of super senior long exposure ABS CDOs to an affiliate of Lone Star Funds for just $6.7 billion. Those CDOs were carried at a value of $11.1 billion at the end of the second quarter. This sale results in writedowns of $4.4 billion.
Merrill stock initially moved lower on this news in the after hours but it retraced some of the move. The sale signals that Merrill sees no end in sight to the mortgage mess, and it certainly raises new questions about other firms on the street. Doubly painful for Merrill is the fact its CEO John Thain had reassured analysts earlier this month the firm could avoid a stock sale.
What to Watch
New data on home prices is due Tuesday when the S&P/Case-Shiller index is reported for May at 9 a.m. Consumer confidence is expected at 10 a.m.
Also in the after hours, Amgen added to its already 12 percent gain, with a strong earnings report.