Wall Street Tumbles in Early Trading
Wall Street is worried that General Motors Corp. and Chrysler LLC might not be able to prove by Tuesday's deadline that they can repay billions of dollars in loans and return to profitability. GM has already received $9.4 billion from the government, and could get another $4 billion if the Treasury Department signs off on its viability plan. Chrysler has borrowed $4 billion, and is seeking another $3 billion.
Sam Stovall, chief investment strategist at Standard & Poor's, said Wall Street is nervous GM will say it cannot survive without additional funds -- an admission that would then lead investors to ask, "What if GM does go under?"
The failure of a company with the name recognition of GM would "impact the psyche of the average consumer," Stovall said.
The market also got some more grim economic news on Tuesday. The New York Federal Reserve's regional manufacturing index showed a much deeper contraction in activity than expected.
President Barack Obama is set to sign the $787 billion stimulus package into law Tuesday. He will also be outlining a plan to help stem mortgage foreclosures Wednesday. Wall Street had eagerly awaited the government's plans to help the economy, but now that the programs have become reality, it is realizing the effects will not be immediate.
Investors are looking at the stimulus package "as something that will be helpful, but not a silver bullet," Stovall said. "People are realizing the recession will take time."
In midmorning trading, the Dow dropped 243.88, or 3.11 percent, to 7,606.53. It fell as low as 7,553.48 in early trading -- just a point away from the blue-chip index's five-and-a-half month closing low of 7,552.29 reached Nov. 20.
Broader stock indicators also declined sharply. The Standard & Poor's 500 index fell 30.31, or 3.67 percent, to 796.53. The Nasdaq composite index fell 55.02, or 3.59 percent, to 1,479.34.
The markets were closed Monday for Presidents Day.
Wall Street is coming off a losing week during which the market turned pessimistic about the stimulus package and the Treasury Department's new bank bailout plan. Treasury Secretary Timothy Geithner's outline for the rescue plan was not rife with the details investors had been hoping for.
Investors still don't know how the government plans to price the toxic assets in a way that will please both the banks holding the assets and the private investors looking to buy them. Another unknown is how the government will conduct its "stress test" to decide whether a financial institution is worth saving.
With those uncertainties still hanging over the market, not even slightly better-than-expected fiscal fourth-quarter results from the world's largest retailer, Wal-Mart Stores Inc., could help buoy stocks.
Wal-Mart reported operating earnings of $1.03 per share for the quarter ended Jan. 31, compared with analysts expectations for earnings of 99 cents per share, according to Thomson Reuters. But the company also said first-quarter earnings could miss Wall Street expectations.
Wal-Mart was the only gainer among the 30 Dow companies Tuesday, rising $1.71, or 3.68 percent, to $48.24.
Bond prices were mostly higher. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.69 percent from 2.90 percent late Friday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.29 percent from 0.28 percent late Friday.
The dollar rose against other major currencies and gold prices also rose.
Oil fell $2.53 to $34.98 per barrel on the New York Mercantile Exchange.
Overseas, Japan's Nikkei stock average fell 1.4 percent. In afternoon trading, Britain's FTSE 100 fell 2.36 percent, Germany's DAX index fell 2.89 percent, and France's CAC-40 fell 2.72 percent.