Stocks fell sharply Monday as fear rippled through the market with cracks starting to show in the global financial system and a House vote on the Wall Street bailout bill due later today.
The Dow Jones Industrial Average, was off more than 2.5 percent, while the S&P 500 andNasdaq shed more than 3.5 percent. The CBOE Volatility Index, widely viewed as the best gauge of fear in the market, surged to a nearly six-year high.
Among the top drags on the Dow: Financials — Bank of America , JPMorgan and American Express — took a hit amid worries about the financial system; IBM fell as investors sold off techs amid worried that the global slowdown will drag down tech spending; and, energy stocks like Chevron skidded as oil fell below $100 a barrel.
Veteran trader Art Cashin, director of floor operations at UBS, told CNBC this morning that he learned early on in his career never to bet on the end of the world — it only happens once.
Still, he said, "It might not be a bad idea to find a bomb shelter somewhere."
Investors took some encouragement from news that there was a resolution without a federal bailout on another troubled bank: Citigroup is acquiring most of Wachovia's assets.
Citigroup is buying Wachovia's banking operationsin a deal facilitated by the FDIC,after engaging in a brief bidding war with Wells Fargo.
Citigroup shares rose 4 percent. Wachovia shares weren't yet open after crumbling from $10 Friday to below $1 in premarket trading.
But investors hammered shares of other banks, wondering which one might be next to fall. Among the biggest decliners was National City , the most actively-traded stock on the NYSE, which fell by 50 percent. Fifth Third , Sovereign Bancorp and First Federal (of California) all shed more than 30 percent.
"There are a number of regional banks which may need help, either because of the weakening mortgage market or simply because of the weakening economy," Michael Sheldon, chief market strategist at RDM Financial Group, told Reuters.
Morgan Stanley shares fell nearly 8 percent following news that Japan's biggest bank, Mitsubishi UFJ Financial Group, will take a 21 percent stake in the Wall Street firm.
Meanwhile, Lehman Brothers is expected to announce the sale of its prized money-management unit, Neuberger Berman, by 1:30 p.m. ET today. On Sunday night, two source told Reuters that private-equity firms Bain Capital and Hellman & Friedman were close to a deal for the unit.
Federal Reserve Chairman Ben Bernanke said early Monday that he welcomed the Citigroup-Wachovia deal as well as the financial-system bailout hammered out by Congress this weekend. He commended the FDIC for its timely action, saying it shows the government's commitment to economic stability. He also said he looks forward to swift passage of the bailout legislation.
Oppenheimer analyst Meredith Whitney told CNBC this morning that taxpayers are the real losers in this bailout deal. Click on the video at left.
Congress held marathon weekend talks on a Wall Street bailout, with leaders from both sides emerging after midnight Saturday night/early Sunday with a tentative agreement that altered key parts of a Wall Street bailout program initially proposed by the Bush administration, taking some of the burden off of taxpayers.
The proposed legislation would disburse the $700 billion in stages. The first $250 billion would be issued when the legislation is enacted, while another $100 billion could be spent if the president decided it was needed. The remaining $350 billion would be subject to congressional review.
The bill goes to the House for a votetoday; the Senate isn't expected to vote until Wednesday, given Rosh Hashanah, the Jewish new year holiday, on Tuesday.
The Federal Reserve and other central banks announced an extraordinary move Monday morning — a massive liquidity injection— to try to revive paralyzed credit markets.
The Fed said it would inject another $330 billion of liquidity into the market. When combined with efforts of other central banks, that means an additional $630 billion of liquidity will be flowing through the market over the next several months.
Later Monday, hedge-fund managers will have to disclose their short positions to regulators, a move set to give a rare public glimpse into their secretive trading strategies two weeks later.
As the U.S. government worked overtime to shore up its financial system, cracks started to show in the world financial sector as two European banks were nationalized over the weekend.
In the biggest European bank bailout since the credit crisis began, three governments jumped in to rescue Belgian-Dutch bank Fortis. The Belgian, Dutch and Luxembourg governments took a 49 percent stake in Fortis with an 11.2 billion euro ($16.4 billion) injection.
Meanwhile, the U.K. nationalized troubled mortgage lender Bradford & Bingley. After weekend talks failed to yield a buyer, the U.K. Treasury said it would take over B&B's 50-billion pound ($90.12 billion) mortgage portfolio and sell its deposits and branches to Spanish bank Santander.
Shares in French bank Dexia tumbled more than 20 percent on a newspaper report that it might launch an emergency capital increase.
Outside of the financial sector, technology stocks were the hardest hit as investors worried that a severe downturn in the global economy would drag down tech spending.
Apple shares were the most actively traded on Nasdaq, plunging 16 percent, after a slew of downgrades. Analysts said it wasn't so much that Apple was doing anything wrong as it was a worry about demand.
Shares of rival Research In Motion fell more than 8 percent.
Circuit City shares tumbled 8 percent after the electronics retailer reported a wider quarterly loss and withdrew its financial outlook. The company, which last week announced the immediate departure of its chairman and CEO, also said it would suspend new store openings beginning in fiscal 2010 in order to focus on turning around the business. Circuit City has reported losses for five of the past six quarters.
Shares of rival Best Buy fell about 3 percent.
In economic news, consumer spending was unchanged in August, shy of the 0.2-percent increase economists had expected, even as income rose 0.5 percent.
Shares of Pilgrim's Pride slipped another 2 percent after plunging 72 percent last week. The stock fell on warnings that earnings would take a hit because of restricted access to credit, a forecast seen as indicative of problems in the industry itself.
Pilgrim's Pride said it received a temporary waiver on a credit covenant and retained advisers to review its operations and refinancing strategy. The waiver will help provide liquidity.
MONDAY: Fed's Hoenig speaks
TUESDAY: Case-Shiller home-price index; Chicago PMI; consumer confidence; Fed's Lockhart speaks
WEDNESDAY: Auto sales; weekly mortgage applications; ADP employment report; ISM manufacturing index; construction spending; weekly crude inventories
THURSDAY: Short-selling ban expires at 11:59 pm ET; ECB announcement; jobless claims; factory orders; natural-gas inventories; Fed's Bullard speaks; earnings from Constellation Brands
FRIDAY: August jobs report; ISM services index; earnings from Family Dollar
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