The stock market's three-week run hit a wall Monday.
After scoring a 20 percent gain in 14 trading days, financials foiled the rally.
Stocks ripped lower after the Obama administration slapped the auto industry for slow progress in restructuring and pushed out General Motors CEO Rick Wagoner. The market reacted poorly to the prospect that GM could now face bankruptcy, but traders say it was also comments from Treasury Secretary Timothy Geithner over the weekend that shook up investors. Geithner said some banks will need a lot more money.
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"I think it's probably more important to look at what started the rally three weeks ago, and that was the financials. And what's the worst performing part of the S&P today? That's the financials. It's probably more important than the industrials or the autos," said Art Hogan, managing director at Jefferies. The rescue of a Spanish bank Sunday night also rattled markets.
In Tuesday's market, investors are watching the S&P/Case Shiller home price index, released at 9am. Chicago purchasing managers data is reported at 9:45am, and consumer confidence is issued at 10am.
Traders had expected stocks to run higher into the quarter end (which is Tuesday), and then fall back as investors lock in profits.
Stocks Monday fell more than 3 percent, with the Dow down 254 at 7522. The S&P was off 28 at 787. The VIX, which is watched as a fear meter for stocks, rose more than 11 percent to 45.87. The VIX is the Chicago Board of Options Exchange's Volatility Index. Financials were down 9.4 percent Monday but were 10.2 percent high for the month. For the quarter, they were 33.9 percent lower.
As the dollar rose Monday, oil fell sharply. Crude finished at $48.41, down $3.97 per barrel or 7 percent.
With all the talk about bankruptcies, Michael Psaros of KPS Capital Partners appeared on "Street Signs" Monday. His firm is one of the more active turnaround firms on the street, and its recent acquisitions include Waterford Wedgwood. Psaros said it is an unprecedented time for his business, with an amazing amount of opportunities available.
He said there are plenty of former large companies that have lost their luster and are now "zombies," with market caps below $1 billion. He said the current economic cycle has made it impossible for companies to cut costs fast enough and many are on the ropes. "We're in the first inning of corporate defaults," Psaros said.
"In Q1 2009, we have half the number of Chapter 11 filings we had in all of 2008, and the pace is accelerating dramatically," he said. Psaros said a big issue for companies is that debtor in possession (DIP) financing is unavailable. His firm is willing to step in and provide that financing.
"We just closed three deals in three weeks. We're going to be very active this year," he said. "I would not be surprised if we were funding another six acquisitions before the end of the year."
The outlook for his business is promising. But not so for the economy. "The real economy is just flat out dead," Psaros said.
Economic news will take center stage for the rest of the week, winding up with the March jobs report Friday. Earnings warning season also begins, now that the first quarter is ending.
"It's earnings season. If you throw in Friday's correction and today's pullback, you're coming at these things from a more reasonable level. The balance of the week brings us a plethora of economic data. Washington had their day. Case Shiller comes out tomorrow," said Hogan. "...That's residential real estate, which is the root of all our evils here."
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