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Hopes that European policymakers would unveil a plan to stem the region's debt crisis by next week were quashed by German officials, sapping Wall Street's enthusiasm, and sending the Dow tumbling more than 215 points.
As of 3:10 p.m. ET, the Dow Jones Industrial Average fell 217 points, or 1.9%, to 11,426, the S&P 500 slid 20.9 points, or 1.7%, to 1,204, and the Nasdaq Composite slid 50.3 points, or 1.9%, to 2,618.
The markets have made a sharp turn to the downside. Indeed, Monday's selloff comes on the heels of the best weekly rally for Wall Street since 2009.
Every major sector was in the red on Monday afternoon, but financials and basic materials shares sustained the worst selling pressure. Aluminum-giant Alcoa (AA) was one of the worst-performing stocks on the Dow, and Wells Fargo (WFC) tumbled close to 8% on the back of disappointing earnings.
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In a sign of the tumult on the day, the VIX, a gauge of volatility, surged 15%. Treasury yields fell as traders once again began moving money out of stocks and into safe havens. The benchmark 10-year note recently yielded 2.182% from 2.160%.
Developments regarding Europe's twin sovereign debt and financial crises have been a major driver of the markets over the past few months. A statement from financial and central bank officials meeting at the Group of 20 summit last weekend giving European policymakers a deadline of October 23 to finalize Greece's much-needed bailout, and make a move to tackle the region's banking issues initially sent stock-index futures and global markets rallying for another day.
However, a comment on Monday morning from Germany's finance minister, Wolfgang Schaeuble, suggesting that euro-zone leaders won't have crafted a definitive solution by next Sunday quickly sapped that enthusiasm.
"This week we expect the market to remain focused on further policy actions to contain the European debt crisis," analysts at Nomura wrote in a note to clients.
The euro tumbled 1% against the U.S. dollar, while the greenback gained 0.52% against a basket of world currencies.
On the corporate front, Citigroup (C) posted third-quarter earnings, excluding one-time charges, of 84 cents a share, zipping past estimates of 81 cents. The banking giant's revenue came in at $20.8 billion, also beating estimates of $19.3 billion. Wells Fargo said it earned 72 cents a share in the third quarter, missing estimates by a penny. These reports come on the heels of earnings from JPMorgan Chase (JPM), the second-largest U.S. bank, that were seen as disappointing by investors.
Kinder Morgan (KMI) unveiled plans to scoop up El Paso (EP) for $21.1 billion, in a deal that will create a North American natural gas pipeline giant. The tie-up, which is expected to close in 2012, is one of the biggest of the year, and highlights the growing demand for natural gas, even as prices have fallen.
Industrial production rose 0.2% in September from August, which was inline with economists' expectations. However, industrial production growth for August was revised lower to no change, from a 0.2% increase. These data comes as part of a round of relatively upbeat information on the economy, including last Friday's rosy retail sales data that have lessened worries that the economy may be heading for a double-dip recession.
A manufacturing report from the New York Federal Reserve on the Empire State region showed the sector contracted considerably more quickly than expected in October. The Fed's gauge came in at -8.48 from -8.82 in September, missing estimates of -4. Reading above 0 point to expansion, while those below 0 point to contraction. The more closely followed Philadelphia Fed index is on tap for Thursday.
Energy prices have rallied along with equities, with oil prices soaring close to 10% over a two-week period, however they were in the red on Monday. Light, sweet crude fell 42 cents, or 0.48%, to $86.38 a barrel. Wholesale RBOB gasoline slipped 8 cents, or 2.9%, to $2.74 a gallon.
In metals, gold slid $6.40, or 0.38%, to $1,677 a troy ounce.
Caterpillar (CAT) shares got a boost after Goldman Sachs upgraded the heavy-machinery giant to a "buy" rating.
Apple (AAPL) sold more than 4 million iPhone 4S units in the first weekend they were available. Shares rose modestly to an all-time high on the news.
The Euro Stoxx 50 fell 1.7% to 2,316, the English FTSE 100 dipped 0.54% to 5,437 and the German DAX tumbled 1.8% to 5,859.
In Asia, the Japanese Nikkei 225 jumped 1.5% to 8,880 and the Chinese Hang Seng soared 2% to 18,874.