No confidence in the "stimulus"?
NEW YORK – Stocks tumbled Tuesday as investors grew more doubtful that the government can quickly turn around the still-weakening economy.
The major indexes dropped by more than 3 percent, and the Dow Jones industrial average sank near the multi-year lows it reached last November.
A big worry on Wall Street is 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?"
GM shares sank 28 cents, or 11.6 percent, to $2.22.
The failure of a company with the name recognition of GM would "impact the psyche of the average consumer," Stovall said. Consumers have already been sharply reining in their spending.
The market also got some 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 midday trading, the Dow dropped 260.37, or 3.32 percent, to 7,590.04. 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 lost ground. The Standard & Poor's 500 index fell 32.58, or 3.94 percent, to 794.26. The Nasdaq composite index fell 57.01, or 3.72 percent, to 1,477.35.
The Russell 2000 index of smaller companies fell 16.37, or 3.65 percent, to 431.99.
Declining issues outnumbered advancers by 2,830 to 198 on the New York Stock Exchange, where volume came to 534.6 million shares.
The markets were closed Monday for Presidents Day.
Last week, stocks had plunged as investors optimism waned over 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. Invesors 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 $1.50, or 3.3 percent, to $48.03.
Bond prices were mostly higher. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.67 percent from 2.90 percent late Friday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.30 percent from 0.28 percent late Friday.
The dollar rose against other major currencies. Gold prices also rose.
Oil fell $2.81 to $34.70 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 2.59 percent, Germany's DAX index fell 3.45 percent, and France's CAC-40 fell 3.02 percent.
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