(By Salman - iStockAnalyst Writer)
US stocks fell sharply on Monday on concern Treasury’s bailout plan, Troubled Asset Relief Program (TARP) will not be enough to contain credit crisis, restore normalcy in financial markets and revive the economy. A sharp jump in Crude Oil prices also weighed upon the markets.
The Dow Jones Industrial Average dropped 372.775 points (-3.3%), to 11,015.69.The Standard & Poor's 500 Index retreated 47.99 points (-3.82%) to 1,255.08. The Nasdaq Composite Index lost 94.92 points (-4.17%) to 2,273.9. Financials and Homebuilders suffered the most on Monday
Earlier on Sunday, Treasury Secretary Henry Paulson urged the Congress to quickly approve a $700 billion proposal to buy bad mortgage debt and toxic assets in order to rescue credit market, which has virtually frozen in recent days. The plan is being seen as “mother of all bailouts” and is supposed to calm a nervous market and restore investor’s confidence. Paulson stressed that financial markets remain “fragile” and argued that the consequences of “inaction” could be disastrous.
The plan is supposed to give Treasury the authority to buy home loans, mortgage-backed securities, commercial mortgage-related assets and, after consultation with the Federal Reserve chairman, ``other assets, as deemed necessary to effectively stabilize financial markets''. The Treasury would also have discretion, after discussions with the Fed, to make non-U.S. financial institutions eligible under the program. To cover the cost, Treasury has asked Congress to hike the government's debt ceiling to $11.3 trillion from $10.6 trillion. Further, Paulson is asking for the power to hire asset managers and award contracts to private companies.
American Express Co.
(AXP) fell 7.7%. , Bank of America
(BAC) dropped 8.9%, Citigroup
(C) lost 4.0%. J.P. Morgan
(JPM) slipped 13%.Wells Fargo (
WFC) shares fell 11.6% to $35.18.
Washington Mutual
(WM) retreated 21.6% to $3.33 after Moody's Investors Service put WaMu on review for possible downgrade on Monday. The nation's largest thrift has put itself up for sale.
Goldman Sachs Group
(GS) and Morgan Stanley tumbled
(MS) 6.9% and 0.44% respectively after they got an approval from US Federal Reserve to transform into commercial bank. According to reports, Japan's largest bank, Mitsubishi UFJ Financial Group is planning to buy a stake in Morgan Stanley.
Meanwhile, Lehman Brothers sold its Asian operations to Nomura, Japan’s largest brokerage firm, for $225 billion. The shares of the bankrupt Wall Street firm were down 14%.
Late on Friday, Ambac Financial Group
(ABK) said that a downgrade by ratings agency Moody's Investors Service would leave its guaranteed investment-contract business short of collateral to meet liabilities. The shares of the firm lost 9.3% on Monday.
Among home builders, Hovnanian Enterprises
(HOV) declined 6.5% to $8.46.
Shares of Caterpillar Inc
(CAT), manufacturer of construction and engineering equipments fell 2.8%.
Auto and Airline stocks too were battered in Monday's session, as Crude Oil futures jumped to $130 in intraday trade. General Motors Corp.
(GM) plunged 11.5% while Ford Motor Co.
(F) dropped 6.4% to $4.95.UAL Corp.
(UAUA) fell $1.44, or 10.88 %, to $11.80.
Retailers were hit hard as well. Target Corp
(TGT), the second largest U.S. discount retailer, fell 6.6% after Lazard Capital Markets cut the stock to "hold" from buy." Macy's Inc.
(M), the second-biggest U.S. department store chain, lost 7.7% to $18.42. Home Depot Inc.
(HD), the largest home-improvement retailer retreated 6.4%.
Kraft Foods Inc
(KFT), the newly introduced Dow component, also declined 4.6%. McDonald's Corp.
(MCD), the world's largest restaurant company, decreased 2.2% after it asked franchisees to seek other ways to finance store improvements after Bank of America declined to increase leasing.
Among technology stocks, Apple Inc.
(AAPL) was down 7% after JPMorgan cut its price target on the iPod and iPhone maker's stock. McAfee Inc. (
MFE) fell 4.3% after it announced that it is buying Secure Computing Corp.
(SCUR) for $413 million in cash, or $5.75 a share.
However, Microsoft Corp.
(MSFT) rose 1% after the software giant said it will buy back up to $40 billion of stock between now and September 2013 and raise its dividend by 18%.
European Stocks settled in red on Monday. UK FTSE settled at 5,236.26, down 75.04 points (-1.41%). German DAX and French CAC retreated 1.32% and 2.34 respectively.
At NYMEX, Crude Oil for October delivery soared on Monday, with contract for October delivery rising as much as $16.37, or 17%. Dollar fell sharply against Euro on concern the Treasury bailout plan will be a costly affair.
Disclosure: Author does not own any of the stocks discussed here
