The Dow plummeted 300 points Monday as Wall Street frets about the fate of General Motors and Chrysler and the potential for additional capital injections for the nation’s troubled banks.
As of 11:36 a.m. EDT, the Dow Jones Industrial Average slid 292.47 points, or 3.76%, to 7483.55, the S&P 500 lost 30.72 points, or 3.74%, to 785.39 and the Nasdaq Composite sank 57.56 points, or 3.73%, to 1487.64. The consumer-friendly FOX 50 fell 22.56 points, or 3.68%, to 589.85.
“People are looking at the distinct possibility that one or both [auto makers] will cease to exist,” said Richard Sparks, senior equities analyst at Schaeffer’s Investment Research. “That’s enough to spook the markets.”
The ugly start to the week comes after the Dow surged nearly 500 points last week, capping its first three-week win streak since May. Amid new government rescues and rare signs of hope for the economy, the beaten-down Dow soared 17.34% over that span, its best three-week gain since Sept. 1982.
“You had a very significant rally over a very short period of time. That rally met a point of resistance,” said Sparks, pointing to the S&P’s 80-day moving average. “We were overbought to some degree.”
Shares of General Motors (GM: 2.84, -0.78, -21.55%) took a double-digit dive after the U.S. said GM and Chrysler’s restructuring plans do not go far enough to make the auto makers viable. The government is giving GM 60 days to reach new concessions with the union and bondholders and did not rule out bankruptcy.
The U.S. also pushed for the resignation of CEO Rick Wagoner, who will be replaced by Frederick “Fritz” Henderson, GM’s chief operating officer.
“The government is taking a more heavy-handed approached. The market never sees that to be good,” said Frank Davis, director of sales and trading at LEK Securities.
Chrysler, which is owned by private equity firm Cerberus Capital Management, was asked to finalize a partnership with Fiat by April 30. If a partnership cannot be put together, the Obama Administration is prepared to withhold any additional government aid – effectively sending Chrysler into bankruptcy reorganization or liquidation.
There was growing skepticism amongst traders about the ability of the auto makers to quickly reorganize and what the ripple effects of bankruptcy filings would look like.
Meanwhile, financial stocks like JPMorgan Chase (JPM: 25.64, -1.78, -6.49%), Citigroup (C: 2.37, -0.27, -10.23%) and Bank of America (BAC: 6.38, -0.97, -13.2%) took a dive after Treasury Secretary Timothy Geithner said on ABC’s “This Week” that some banks are going to need “large amounts” of additional government aid to stay afloat.
Fears about the length and depth of the 16-month recession were also evident as shares of basic material companies like aluminum maker Alcoa (AA: 6.82, -0.98, -12.56%) and U.S. Steel (X: 21.33, -2.958, -12.18%) plunged.
In the commodity markets, oil slid $2.34 per barrel to $50.05 a barrel while gold rose $3.20 per ounce to $928.50.
European stocks took a dive as London’s FTSE 100 dropped 2.03% to 3819.68, Germany’s DAX slid 3.1% to 4073.03 and Paris’ CAC 40 fell 2.23% to 2777.37.
In Asia, Tokyo’s Nikkei 225 plunged 4.53% to 8236.08 while Hong Kong’s Hang Seng tumbled 4.7% to 13456.33. China’s Shanghai Composite fell 0.7% to 2358.04.