Stocks Slide Amid Drag of GE, Banks
Stocks declined as investors worried about when and how the government bailout would go through. Lowered analyst outlooks dragged on General Electric and bank stocks.
"I think everybody thought [the bailout] was a done deal. And all of a sudden Congress and everybody is talking about it for two days," said Nadav Baum, managing director of investments at BPU Investment Management in Pittsburgh. "Markets hate uncertainty — especially now."
General Electric was among the biggest drags on the Dow and S&P 500 after Goldman Sachs cut its profit forecast on the conglomerate. (Track the Dow winners & losers.)
The market started off jittery as investors wonder if, whatever the bailout entails, it will be enough to dig us out of the credit crunch.
Oppenheimer analyst Meredith Whitney gave the market an answer to that question it didn't want to hear: The government's bailout plan has "little hope" for improving banks' fundamentalsin the near or medium term, Whitney said, slashing her outlook for U.S. banks and projecting more dividend cuts.
Whitney now expects Citigroup to post a loss for the third quarter, widened her projected loss for Wachovia and cut her earnings estimates for Bank of America , JPMorgan Chase and Wells Fargo .
Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke began an intensive two-day round of congressional hearings to hasten approval of the bailout legislation.
CNBC.com is live streaming the hearings, which began at9:30 am ET.
A lot is riding on how well the two officials can soothe fears that the measures being taken will be enough to stem the financial market collapse.
Details of the $700 billion bill have started to filter through the market but a full picture of how the markets and economy will be affected may not be apparent until next week. In the meantime, stocks are subject to further volatility as uncertainty rules.
Crude oil came back down to Earth, with the November contract trading around $106 a barrel. The October contract expired on Monday, and with a lot of bets against oil, it created a massive short squeeze. Short sellers, who borrow stock betting it will fall only to buy it back at the lower price, were forced to cover their bets before the contract closed. That sent oil to its biggest one-day gain on record, finishing at $120.92 a barrel.
The dollar clawed backafter recording its biggest one-day loss against the euro on Monday. Analysts say uncertainty about the U.S. bailout plan is going to cap the dollar's gains.
Investors got a reminder of the flagging state of the economy as the National Retail Federation forecast holiday sales are to grow at the slowest pace in six years. Consumers are put off from spending by worries over job security, falling house prices and rising inflation.
There was some good news for former Lehman Brothers staff, however, as UK bank Barclaysreopened several of the collapsed investment bank's former businesses. Lehman's sales and trading businesses are not yet open.
At the same time, the decision by Morgan Stanleyand Goldman Sachs to become holding banks rather than investment banks continued to raise concerns among investors.
In earnings, shares of Lennar advanced after the homebuilder posted a narrower-than-expected loss.
Chemical maker DuPontnamed Ellen Kullma as its CEO, effective in January. She succeeds Charles O. Holliday, Jr., who helmed the chemical and electronic-materials company for more than 10 years.
Shares of electronics retailer Circuit City gained more than 5 percent after its CEO resigned amid a fierce proxy battle. The resignation is effective immediately. Board member James Marcum will assume the CEO role on an interim basis.
STILL TO COME:
WEDNESDAY: Bank Reserve Settlement; Fed's Bernanke and Lacker speak; weekly mortgage applications; existing-home sales; weekly oil inventories; Earnings from Bed, Bath & Beyond and Nike
THURSDAY: Paulson testifies; Chicago, Dallas Fed presidents speak; jobless claims; durable goods; new home sales; natural-gas inventories; Kansas City Fed manuf. report; Earnings from Discover, Rite Aid and Research In Motion
FRIDAY: St. Louis Fed pres. speaks; Last look at Q2 GDP, corporate profits; consumer sentiment; Earnings from KBHome
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