Stocks fell sharply Friday as oil prices climbed about $3 and a concotion of rumors and bad news shook up the banking sector.
The Dow Jones Industrial Average tumbled nearly 200 points, or 1.5 percent, pushing the blue-chip index well below 12000, a level it hasn't seen March.
The S&P 500 and Nasdaq were off more than 2 percent, with the S&P threatening to make a break below 1300 toward its March low.
Adding to the volatility today is quadruple witching -- when contracts for stock index futures, stock index options, stock options and single stock futures expire in the same day -- which could bring some wild swings toward the end of the day.
As major indexes retest their March lows, the "C" word -- capitulation has been tossed around the market. Analysts are willing to concede that some sectors, namely regional banks, are in a state of capitulation, but many say there'sstill further to go for the broader market.
"I think capitulation's a strong word," said Brian Gendreau, investment strategist at ING Investment Management. "When you get a capitulation trade you get a feeling of total despair and darkness in the market where people just completely throw in the towel, and I don't see that at all."
"I'd stay with the big-cap names that do a lot of business overseas -- and wait for capitulation," Gregory Church of Church Capital Management told CNBC. "There’s going to be an opportunity to buy this market – we gotta go through a little bit more hell before we get there."
General Motors was the top decliner on the Dow amid news that the auto maker is re-evaluating the launch of several vehicles.
Ford announced that it may not break even by 2009 and that it was slashing production by 25 percent in the third quarter as auto makers grapple with a sharp slowdown in sales. Ford is even delaying the launch of the new model of its popular F-150 pickup truck in order to try to work through some inventory of the current model.
Ford and GM's financial arms may need to write down $1.1 billion and $1.5 billion, respectively, a Lehman Brothers analyst said, as the slowdown has been a blow to U.S. auto credit.
Losses in the financial sector deepened, with the S&P 500 financial index off 1.5 percent, as investors digested a slew of news.
The latest rumor in the market is that JPMorgan , which earlier this year bailed out Bear Stearns, may be on the prowl for a new acquisition. Sources tell CNBC that CEO Jamie Dimon is mulling a purchase of a regional bank -- Wachovia and SunTrust are names that have come up on the short list.
Traders didn't seem to be impressed with speculation, sending shares of Wachovia and SunTrust lower. It's hard to blame them after Dimon and other JPMorgan executives this week conceded that Bear Stearns was worth far morethan the $10-a-share they paid.
Earlier, rumors of a profit warning from Merrill Lynch sent a ripple through the market. Merrill has refused to comment on the speculation but sources tell CNBC the rumors aren't true. Still, the stock dropped.
Regional banks have had a brutal week, with several cutting dividends and announcing plans to raise more capital to stay afloat.
Large-cap regional bank stocks are now in "capitulation mode" and will likely trade below fair value in the near term, said Merrill Lynch analyst Edward Najarian. The analyst cut his earnings estimates by an average 22 percent and 19 percent for 2008 and 2009, respectively. He also expects more banks to cut dividends and raise capital in the second half, including Bank of America and Wachovia.