Stocks declined Monday as a more than $16 jump in oil prices exacerbated the selloff on Wall Street started by worries about the ability of the government bailout to revive the financial system.
"It's the fear of the unknown," said Al Goldman, chief market strategist at Wachovia Securities. "We got used to writeoffs ... we had so many shoes drop that it didn't mean anything. Then, over the weekend, we get Wall Street has changed forever," Goldman said. "This is a real shock."
The Dow Jones Industrial Average lost nearly 373 points, or 3.3 percent, to close at 11015.69. Much of that was due to financial stocks, which accounted for three of the top four decliners. (Track the Dow winners & losers.)
The S&P 500 fell 3.8 percent, while the tech-heavy Nasdaq skidded 4.2 percent despite enthusiasm for stock buybacks in the sector.
Crude oil rocketed $16.37, or 16 percent — the biggest one-day move in both dollar and percentage terms — to settle at $120.92 a barrel amid a massive short squeeze. (See a list of the top 10 oil moves by dollar and percent.)
The October crude contract expires today and a big reason for today's oil rally was short covering. Short covering occurs when a buyer borrows a stock, betting it will go down, then has to buy it back at that lower price. A lot of traders were short oil, assuming the only way it could go was down, then had to cover their bets before the contract expired.
The big shock this weekend was that the last two pillars on Wall Street — Goldman Sachs and Morgan Stanley — are being converted into commercial bank-holding companies instead of stand-alone investment banks. The two banks will now be able to create commercial banks, but will be subject to tighter regulation.
Goldman shares fell 7 percent. Morgan Stanley eased just 0.4 percent after Japan's largest bank, Mitsubishi UFJ Financial Group, said today that it plans to buy a 10 to 20 percent stakein the firm.
Morgan Stanley had been in talks to merge with Wachovia but sources close to the deal say these latest developments put any such deal on the back burner — possibly forever.
Wachovia shares shed 12 percent after being downgraded by Stifel Nicolaus to "hold" from "buy." Analysts said the stock's recent run up was "too much, too soon."
JPMorgan was the Dow's biggest drag, shedding about 13 percent, after Sandler O'Neill downgraded the stock to "hold" from "buy."
Wells Fargo ws also downgraded by Sandler O'Neill. Its stock 12 percent.
Meanwhile, Japanese brokerage house Nomura Holdings reached a deal to buy the Asian operations of Lehman Brothers, . UK bank Barclays has already snapped up the core US business held by Lehman.