Stocks continued their slide Monday as the economy and what is expected to be a horrendous earnings season formed a one-two punch to knock out hopes for a January rally.
Major indexes were off their session lows but still reflective of a negative mood on Wall Street, with the Dow Jones Industrial Averagefalling nearly 1.5 percent and the Standard & Poor's 500and the Nasdaqboth down more than 2 percent. After-the-bell earnings from Alcoa added to the gloom, as did predictions of continued economic difficulty from outgoing Treasury Secretary Henry Paulson.
Commodities and financials were taking the biggest hits, but the economic slowdown was sparing few sectors.
"Commodities are getting stocks nervous again," Art Cashin, director of floor operations at UBS, told CNBC. "A deflationary pattern is evolving."
Earnings season was on the minds of many on Wall Street, with Dow component Alcoa's shares already lower from an analyst downgrade. The company's earnings badly missed expectations, with Alcoa losing 28 cents a share against expectations of 10 cents.
In the meantime, Wal-Mart continued to be one of the market's few bright spots amid all the consumer weakness and unemployment. Its CEO, Lee Scott, joined in the chorus of economic gloom during a speech at the National Retail Federation's annual conference, but he also issued a call for the public and private sectors to cooperate to tackle health care and environmental issues.
Energy also acted as a drag on the market, with crude oil prices tumbling more than $3 to below $38 a barrel, despite Saudi Arabia's pronouncement over the weekend that it would cut production even below OPEC guidelines. Traders instead focused on the pervading belief that the global downturn would weigh on consumer demand.
Shares in major energy producers such as Chevron drifted lower.
Treasury Secretary Paulson, meanwhile, did little to assuage the negative sentiment during an interview on CNBC when he said hard times were likely to continue for a considerable period of time. See Maria Bartiromo's interview with Paulson in video.
Investors also were watching developments in the potential sale of Citigroup's Smith Barney investment brokerage unit to . CNBC reported over the weekend that an announcement is unlikely todayin a deal that could net Citi more than $2.5 billion for surrendering its majority share to Morgan .
Citi's shares were getting pounded as investors worried over the company's capital position and a looming fourth-quarter loss.
Citi was big loser among financials; U.S. Steel led the slide among raw material-based stocks, a sector that has been getting hammered when economic fears are at their peak.
Kraft Foods and General Motors led Dow gainers, while Citi was the index's biggest loser, followed by Bank of America and JPMorgan Chase.
On the tech side, Apple was among the biggest drags.
Harley-Davidson also feel sharply as Goldman Sachs added the motorcycle maker to its conviction sell list.
And
Circuit City
shares reversed a sharp loss following news that Mexican retail and media tycoon Ricardo Salinas Pliego is evaluating all scenarios including purchasing the troubled electronics chain. A spokesman declined to say whether Salinas was one of two possible suitors that Circuit City mentioned Friday, according to Reuters.
Economic stimulus issues will be in the news throughout the week.
Congressional Democrats could schedule a vote this week on an expected joint request from President Bush and President-elect Barack Obama  to release the second $350 billion traunch of funds from the Troubled Asset Relief Program, the bailout money being used to help troubled US institutions. Bush will ask Congress on Obama's behalf for the TARP funds.
In housing, Lennar shares fell further as the company sought to stave off allegations of impropriety from a California pastor who spent time in prison for stock fraud.
Lennar said its CEO did not receive a mortgage from the company and it was not engaged in a Ponzi scheme with its joint ventures.
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In deals, shares soared for Advanced Medical Optics on news that Abbott Laboratories would buy it for $1.4 billion. The $22 per share purchase price represented a nearly 150 percent premium over Friday's close, reflected by the surge in AMO stock.
Private education firms continue to do well, with Apollo Group nearing a 52-week high on better than average volume.
In the global markets, trading was lower, with Europe off about 0.5 percent and Asian shares dropping about 2 percent.
There were no significant economic reports on tap Monday, but the rest of the week features retail sales and inflation numbers. December's retail numbers are due Tuesday, while producer price index figures are due Wednesday and consumer price index Thursday. The Fed's beige book report also is due Wednesday in which the central bank breaks down strengths and weaknesses in the economy.
Retail stocks were largely flat as investors may have priced in most of the damage from a difficult holiday sales season.