Stocks fell sharply Wednesday, led by financial and auto stocks after worrisome results from Morgan Stanley, FedEx and others. Regional banks also took a hit after Fifth Third cut its dividend.
The Dow Jones Industrial Average finished off 131.24, or 1.1 percent, at 12029.06, its lowest close in three months. The blue-chip index briefly slipped below 12000 -- the first time that's happened since March 18, when the market was reeling from the collapse of Bear Stearns.
The Nasdaq shed 1.1 percent and the S&P 500 fell 1 percent.
rose $2.67 a barrel to settle at $136.68 a barrel after the EIA reported that crude inventories shrunk by 1.2 million barrels last week, less than the 1.5 billion draw expected.
Stocks aren't see-sawing with the rise and fall of oil anymore. The market's more pressing concern is that the worst isn't over for banks and brokerages.
Still, there are rumblings in the market that the second-half recovery is still on, particularly as the market threatens to make a third test of the year's lows, after similar levels in January and March.
"A lot of the indications are pretty positive that the market is setting up for better response in the fall and into next year," said Bruce McCain, head of investment strategy at Key Private Bank, citing the stimulus checks and Fed rate cuts among the catalysts.
McCain says now is a good time to start positioning your portfolio for the recovery. His team is beefing up technology and consumer-discretionary positions, while maintaining energy positions and backing off the defensive stocks. They like programmable chip maker Xilinx and some of the usual tech suspects including Oracle and Cisco .
Morgan Stanley reported its profit plunged 56 percentdespite $1.43 billion of pretax gains from asset sales. Revenue dropped in nearly every business. The results from the second-largest U.S. investment bank beat expectations. The stock eked out a gain of 0.3 percent after taking a beating for most of the day amid amid concerns about the future.
The report is the third in this week's brokerage trilogy: Lehman Brothers on Monday reported a disappointing $2.8 billion loss. On Tuesday, Goldman Sachs , which has fared better than some of its rivals due to less exposure to the subprime mess, said its profit dropped 11 percent but beat expectations.
Goldman shares finished up 1.9 percent, while Lehman shed 1.4 percent.