Stocks continued to tumble on news Standard & Poor's has a negative outlook on the long-term debt of the United States, citing concerns lawmakers will be unable to come to an agreement to address budgetary challenges.
Most Dow components sank, led by Caterpillar, Bank of America, and Alcoa . Boeing was the only stock on the blue-chip index to rise.
The S&P 500 fell to 1,300, while the Nasdaq also sank. The CBOE Volatility Index, widely considered the best gauge of fear in the market, skyrocktered more than 18 percent to above 18.
All key S&P 500 sectors fell, led by industrials, technology and energy.
The major downdraft in the market, and the spike in volatility, are not surprising given S&P's downgrade of its outlook for U.S. debt, and the fact a number of key earnings reports from financial and tech companies, among others, are due out this week, said J.J. Kinahan, chief deriviatves strategist at TD Ameritrade.
Also, he noted, while the market has fallen, the S&P 500 is still trading above 1,275, the low end of a range that the market has sustained for awhile.
"There's no reason to hit the panic button yet," Kinahan said, adding, "It's natural that the volatility would increase."
S&P affirmed the U.S.'s triple-A rating, but put the U.S.'s long-term debt on "negative" watch from "stable."
reflects the "very large budget deficits and rising government indebtedness" of the U.S. relative to its triple-A peers, S&P said in a press release. "The path to addressing these is not clear to us," the rating agency said.
"We believe there is a material risk that U.S. policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013; if an agreement is not reached and meaningful implementation is not begun by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer 'AAA' sovereigns," S&P said.
It was the first time the rating agency had lowered its outlook for U.S. debt; Moody's put the U.S. on negative watch in January 1996 when Republicans refused to increase the debt ceiling. The watch came off in March that year when the debt ceiling was raised.
In response, Assistant Secretary for Financial Markets Mary Miller of the U.S. Department of the Treasury noted that S&P emphasized "the importance of timely bipartisan cooperation and action on fiscal reform."
And, Miller said in a press release, Moody’s, a second rating agency, said that: ''we view the changed parameters of the debate, with broadly similar goals as to government debt levels, as a turning point that is positive for the long-term fiscal position of the U.S. federal government."
Meanwhile, oil prices droppedafter a lack of buyers for crude prompted Saudia Arabia to cut its output. London Brent crude traded below $123 a barrel, while U.S. light crude fell below $109.
Gold prices surged to new records above $1,490 after news of the downgrade in the U.S.'s long-term debt rating. The dollar , however, was up slightly in part because ofpressure on the euro amid concerns that Greece will need to restructure its debt and contuining uncertainty over Portugal's financial health.
In earnings news Monday, Citigroupposted a profit of 10 cents per share, a penny ahead of estimates, but net income fell, and the bank said it continues to struggle in terms of growth.
Elsewhere in earnings, Eli Lilly reported profit of 95 cents a share, beating analyst estimtaes and sending shares of the Illinois drugmaker up. And Halliburton also reported sharply higher earnings on increased activity in North American oil fields that offset Middle East unrest.
Texas Instruments will report earnings after the market closes.
Expectations for earnings were last week as Bank of America
and Google kicked off the earnings season with worse than expected results.
Healthcare stocks were in the spotlight after Swiss medical device makerSynthes confirmed it is in merger talks with Johnson & Johnson in a deal which could be worth $20 billion.
Gap fell sharply in pre-market trading after news Goldman Sachs downgraded the retailer to "sell" from "neutral," saying their large size represents a "structural hurdle." Bank of America Merrill Lynch downgraded Gap to "neutral" from "buy."
In economic news, the National Association of Home Builderssaid its index of homebuilder sentiment fell to 16 in April from 17 in March as homebuilders reported the spring season was off to a slow start.
Elsewhere, China hiked bank reserve requirements to 20 percent on Monday in an effort to combat continuing rising inflation. The increase in reserve requirements is the fourth rise this year.
In Europe, Greece tried to fend off accusations that it would need to restructure its debts but failed to convince investors. Bank stocks such as Societe Generale and BBVA fell on continued concern about Greek debt.
And Dutch consumer electronics group Phillips announced it was divesting its loss makingtelevision business blaming this part of the business for dragging down profits.
On Tap Next Week:
MONDAY: Housing market index, Eli Lilly shareholders meeting, taxes due; earnings from Texas Instruments after-the-bell.
TUESDAY: Housing starts, Fifth Third shareholders meeting, Moody's shareholders meeting, BlackBerry Tablet launches; earnings from Goldman Sachs and Johnson & Johnson before-the-bell, and IBM, Intel, Yahoo after-the-bell.
WEDNESDAY: Weekly mortgage applications, existing home sales, oil inventories; earnings from Abbott Labs, AT&T, United Tech and Wells Fargo before-the-bell and AmEx, Amgen, Apple, Qualcomm, Yum Brands after-the-bell.
THURSDAY: Weekly jobless claims, Philadelphia Fed survey, leading indicators, money supply, Citgroup shareholders meeting; earnings from DuPont, GE, McDonald's, Morgan Stanley, Travelers and Verizon before-the-bell and Advanced Micro and Capital One after-the-bell.
FRIDAY: Good Friday—All markets closed, banks open.
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