Stocks skidded Tuesday as worries about the housing and financial sectors came back with a vengeance.
The Dow Jones Industrial Average plunged 280.01, or 2.4 percent, to close at 11230.73, erasing much of the prior session's gain. Twenty-four of the 30 Dow components finished lower. (Track the Dow winners & losers.)
Enthusiasm for the bailout of Fannie Mae and Freddie Mac had already started to deflate as investors worried that the rescue wouldn't solve the bigger problemswith the housing and credit markets and that the U.S. is running out of options to stave off recession. A sharper-than-expected decline in pending-home sales and a fresh wave of chatter about Lehman Brothers only amplified those jitters.
Pending-home sales fell 3.2 percentin July from June, more than triple the 1-percent drop expected. Pending sales are based on signed contracts, which aren't counted as a sale until the transaction closes. Such sales are down 6.8 percent from a year ago.
Lehman Brothers plummeted to $7.79, its lowest level in a decade, amid market buzz that the brokerage is unlikely to be unable to raise the capital it needs. Reports suggest that talks have collapsed between Lehman and Korea Development Bank. Lehman's two-day slide has shaved $4 billion off its market cap.
Financials were some of the day's biggest decliners, erasing Monday's 4-percent rally and then some.
After Lehman, Washington Mutual , Ambac and AIG rounded out the top decliners on the S&P, with all three finishing down more than 19 percent.
Washington Mutual was under the gun as the cost to insure the bank's debt hit a record just a day after the ouster of its CEO. WaMu's credit-default swaps soared 31.5 percent, meaning it costs $3.15 million to insure $10 million in debt for five years, Markit Intraday reported.
Wachoviashares slipped 14 percent after Merrill Lynch said the bank wouldn't get much boost from the rescue plan and downgraded its rating on the stock to "underperform."
Shares of Fannie shot up 35 percent while Freddie finished flat.
The ink is still wet on the Fannie-Freddie money and auto makers area already pushing for a bailout of their own.
House Majority Leader Steny Hoyer said the House is considering a request to provide at least $25 billion— possibly up to $50 billion — in government-backed loans to help Detroit retool plants to focus on more efficient cars and trucks. It's not clear if the motion will be put to a vote before Congress breaks at the end of September, possibly for the rest of the year.
Shares of General Motors and Ford declined.
Energy stocks also took a beating as oil dropped about $3 to settle at $103.26 a barrel after OPEC powerhouse Saudi Arabia suggested that a meeting of oil ministers of the 13-nation organization will decide to keep crude production steady, despite their worries over rapidly falling prices.
ConocoPhillips shed 8.5 percent, while Valero Energy lost 12 percent.
Homebuilders surrendered Monday's gains after the pending-home-sales report and as Credit Suisse downgraded a group of industry leaders, citing concerns that prices will continue to fall and credit standards will remain tight. Several well-known names in the sector shed more than 10 percent, including Hovnanian and Lennar.
Techs showed a little gusto after getting hammered in the past week but gave up most gains by the closing bell.
Dow component Hewlett-Packard rose less than 1 percent after Bernstein upgraded its rating on the stock following HP's acquisition of Electronic Data Systems.
Apple skidded 4 percent after the company announced new iPod nano and iPod Touch music players. The new nano, which is priced at $149 for 8 gigs of memory, is thinner and has a "shake to shuffle" feature. The Touch, which will sell for $229-399, depending on your gigs, is a lot like an iPhone, only without the phone part. Apple also announced a deal with NBC Universal, parent of CNBC, that NBC shows will again be available on iTunes. CEO Steve Jobs attempted to calm nervousness about his health, jesting, "Reports of my death have been greatly exaggerated." (Read a transcript of a live blog from the event by CNBC's Jim Goldman.)
Google slipped following news that the Justice Department has hired one of the nation's best-known litigators, the latest sign that it plans to launch an antitrust action against Google for its tightening grip on the online-advertising market.
McDonald's shares rose 1.2 percent after the fast-food chain said same-store sales rose 8.5 percent in August, more than expected, helped by growth in Europe and its Olympics sponsorship. (Of course, the endorsement from Mr. Eight Gold Medals, Michael Phelps, probably didn't hurt either!)
And, in a sign of the inflationary times, 99 Cents Only Stores announced that it's raising its prices. No, it's not changing its name — yet. The store is pushing it to the max, raising prices to 99.99 cents. Of course, there is no such thing as 1/100 of a penney, so with rounding, that'll be a buck, please. Shares fell 2.9 percent.
STILL TO COME:
WEDNESDAY: Weekly mortgage applications; crude inventories
THURSDAY: Import/export prices; international trade; weekly jobless claims; Treasury Budget
FRIDAY: Producer prices; government reading on retail sales; business inventories; consumer sentiment
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