The stock market opened June with a thud as slumping financial stocks pulled the entire market lower.
The selling pushed the Dow Jones industrials down 134 points, or 1%, to 12,504. The Standard & Poor's 500 Index was off 15 points, or 1.1%, to 1,386, and the Nasdaq Composite Index was off 31 points, or 1.1%, to 2,492.
But the market's close was a big improvement from its lows on the day. The Dow had been down as much as 210 points; the Nasdaq's low was a loss of 51 points.
The selling started when Wachovia (WB, news, msgs), the big North Carolina banking company, said its board had ousted CEO Ken Thompson. And it was exacerbated when Standard & Poor's downgraded several banks.
In addition, the market was unnerved by an abrupt rebound in the price of crude oil to a high of $129.35 a barrel following an Israeli newspaper report that the Bush administration was planning to attack Iranian military bases. The report was strongly denied, and crude fell back, finishing up 41 cents from Friday at $127.76 a barrel.
At the same time, a Marriott International (MAR, news, msgs) warning that it sees profit growth getting squeezed by the softening economy and rising airline fares started a sell-off in hotel stocks. Marriott was down 2.2% to $32.19; Starwood Hotels (HOT, news, msgs) fell 4.2% to $46.36.
The unease may extend into tomorrow when automakers report sales for May and beyond to Friday when the Labor Department reports on nonfarm payrolls and unemployment.
Only four of the 30 Dow stocks had gains today led by General Motors (GM, news, msgs), up 2% to $17.44 after Barron's said over the weekend that the stock could triple by 2010. Only 71 S&P 500 stocks showed gains today, along with just 17 Nasdaq-100 ($NDX.X) stocks.
Mortgage crisis claims Wachovia CEO
Wachovia's ouster of CEO Thompson was just the start of a bad day for financial stocks. The stock, down as much as 4.5% in the morning, fell 1.7% on the day to $23.40.
The Select Sector SPDR-Financial (ETF, news, msgs) exchange-traded fund, which mirrors stocks in the financial sector of the S&P 500, fell 1.5% to $24.39 on the day. That was the worst close for the ETF since March 17, the day after JPMorgan Chase (JPM, news, msgs) agreed to take over investment bank Bear Stearns.
The Standard & Poor's Banking Index ($BIX.X) hit a low of 219.62, just above its March 17 low, before moving up to 222.50, down 1.4% on the day.
Financial stocks have been weak after a strong April. Stocks in the financial sector of the S&P 500 fell 6.4% in May, the only sector of the 10 in the index to fall during the month. And the overall market capitalization of the group fell behind that of the technology sector for the first time since 2000.
Wachovia's board asked Thompson, a 32-year veteran, to step down after months of crisis. The stock has fallen 61% since April 2006. Lanty Smith, Wachovia's board chairman, was named interim CEO, and Ben Jenkins, the bank's vice chairman and president, was named interim chief operating officer.
Wachovia posted bigger-than-expected losses in April, battered by sinking credit quality and the ill-timed acquisition in 2006 of Golden West Financial, the Oakland, Calif., mortgage lender. Wachovia angered shareholders in April when it cut its dividend by 41%.
"Most people have been requesting that Mr. Thompson be removed from his position" because of the bank's acquisition of mortgage broker Golden West at the peak of the mortgage cycle in May 2006, analyst Dick Bove of Ladenburg Thalmann, told CNBC this morning. "These decisions to make acquisitions continually penalize" companies like Wachovia.
Bove also said that "Wachovia is going to have a horrible second quarter." The bank will release its next earnings report on July 22.
Former CEOs Stan O'Neal and Chuck Prince, of Merrill Lynch (MER, news, msgs) and Citigroup (C, news, msgs), respectively, also resigned in recent months because of losses stemming from the mortgage mess.
S&P ratings cut hits financial stocks
Ratings company Standard & Poor's cut its ratings on several banks and brokerages, including Merrill Lynch (MER, news, msgs), Lehman Bros. (LEH, news, msgs) and Morgan Stanley (MS, news, msgs). S&P also revised the outlooks for Bank of America (BAC, news, msgs) and JPMorgan Chase (JPM, news, msgs) to negative.
Lehman Bros. (LEH, news, msgs) was the big loser from the downgrade, falling 7.9% to $33.90. Merrill Lynch was down 3% to $42.62, Morgan Stanley was off 2.6% $43.10.
Bank of America fell 1.3% to 33.58, and JPMorgan Chase slid 2% to $42.15.
Credit card company American Express (AXP, news, msgs) was the Dow loser, falling 2.4% to $45.25.