NEW YORK (AP) — Wall Street extended last week’s slide Monday as falling commodity prices dragged energy stocks lower and reinforced fears that a slowing economy will further erode corporate profits.
Wall Street is expecting fourth-quarter and full-year earnings arriving this week to be particularly bleak, especially after several companies warned last week that they are being hit hard by the recession. Aluminum producer Alcoa Inc., which last week announced it would slash production, fell again Monday after an analyst lowered his rating on the stock. The company is scheduled to release its results after the closing bell, kicking off the corporate earnings season.
Oil fell below $40 a barrel as investors worried that a weak economy will hurt demand. That weighed on energy stocks. Financial stocks also declined as investors looked to Citigroup and Morgan Stanley, which could announce a deal as soon as Wednesday to combine their brokerage operations. The potential tie-up underscores the troubles with tattered balance sheets that many banks are still trying to address, and a prominent analyst said Citigroup might still need to raise cash.
Investors are also digesting comments from General Motors that the company has presented a worst-case scenario to Congress in which it would need more money than the $13.4 billion allocated by the Treasury Department.
“I think that the biggest concern right now is the economy and whether this thing is going to get worse or it’s going to get better,” said Bernie McGinn, chief executive of McGinn Investment Management.
The intensity of the fear that permeated the market and provoked the heavy selling of September, October and November has lessened, McGinn said, but investors are still hesitant to flood back into the market.
“The level of anxiety and the level of fear has moderated some, but it sure as heck hasn’t turned into optimism,” he said.
In midafternoon trading, the Dow Jones industrial average fell 106.73, or 1.24 percent, to 8,492.45.
Broader stock indicators also declined. The Standard & Poor’s 500 index fell 17.22, or 1.93 percent, to 873.13, and the Nasdaq composite index fell 29.59, or 1.88 percent, to 1,542.00.
The Russell 2000 index of smaller companies fell 7.17, or 1.49 percent, to 474.13.
Declining issues outpaced advancers by more than 2 to 1 on the New York Stock Exchange, where volume came to 625.7 million shares.
Wall Street is coming off its worst week since November. The Dow Jones industrial average fell 4.8 percent last week, the Standard & Poor’s 500 index slid 4.5 percent and the Nasdaq composite index lost 3.7 percent. Stocks fell Friday after the Labor Department reported the nation’s unemployment rate jumped to a 16-year high of 7.2 percent in December. That was up from 6.8 percent in November and more than the 7 percent economists predicted.
Bond prices were mixed Monday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.32 percent from 2.36 percent late Friday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.08 percent from 0.07 percent.
The dollar was mixed against other major currencies, while gold prices fell.
Light, sweet crude fell $2.81 to $38.02 on the New York Mercantile Exchange.
Analysts said the pullback in stocks wasn’t a surprise, particularly ahead of earnings reports.
“It’s to be expected that there will be some retrenchment,” said Scott Armiger, portfolio manager at Christiana Bank & Trust. “Before Friday, the market was up 20 percent, and so you have to fully expect ‘OK, this is not going to recover straight up. It’s going to be jagged.'”
If the earnings results meet analysts’ already low expectations, that could be a positive, Armiger said. But if results are worse than expected, that will add further downward pressure to the market.
Many investors aren’t willing to place big bets on the market until they get a better sense of corporate forecasts for 2009. Analysts predict many more companies will be forced to reduce or withdraw their guidance for this year amid the economic uncertainty.
“There will probably be some reductions in guidance or some watering down of guidance,” said Ken Mayland, president of ClearView Economics. “That is probably going to prove to be a bit unnerving.”
Wall Street is also looking to Washington ahead of President-elect Barack Obama’s inauguration next week. Obama asked President George W. Bush on Monday to seek another $350 billion to aid the financial sector so that he can have the money at the ready when he takes office next week.
Bush agreed to notify Congress, the White House said. Congress has 15 days to reject the request, but efforts were afoot to have the money available for Obama much sooner.
Investors are also awaiting more details of Obama’s stimulus package, which includes big tax cuts and has an estimated price tag of nearly $800 billion.
Among stocks, Alcoa fell 71 cents, or 6.6 percent, to $10.10. Occidental Petroleum Corp. fell $1.37, or 2.4 percent, to $54.93 as oil fell. Citigroup tumbled 83 cents, or 12 percent, to $5.92, after Oppenheimer & Co. analyst Meredith Whitney wrote in a note Monday that while the deal with Morgan Stanley will provide “some near-term capital relief, more likely will be needed.”
Morgan Stanley rose 17 cents to $19.23.