So much for the Santa Claus rally.
A run-up at the end of the 2008 that had some investors hoping the worst was over is crumbling on fear that corporate profit reports arriving this week will signal a recovery in the economy is further off than Wall Street had hoped.
The Dow Jones industrial average fell for the fourth session Monday as oil prices tumbled and as worries about the financial sector grew. So far this year, the Dow is down 3.5 percent. Stocks are still up sharply from late November but investors are quick to look for even subtle shifts in the market after the terrible run for stocks last year.
A drop in oil added to the pessimism Monday. Crude fell 8 percent to a new low for the year as investors bet economic weakness would curb demand. Wall Street normally welcomes falling oil as a boost for consumers who pay less to put gas in their car, but steep drops can touch off deeper fears in the fragile psyche of the market: if oil falls too much it's a sign that the global economy is showing no signs of improvement.
Stocks have lost ground since the Dow rose 19.6 percent from late November to the first part of 2009 — a year-end advance often referred to as a Santa Claus rally. With so many unknowns about when the economy might recover, analysts say most investors prefer to wait until they get a better read on companies' quarterly numbers and, more important, their forecasts.
Wall Street is expecting fourth-quarter and full-year earnings will 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. Alcoa said after the market closed that it lost $1.19 billion during its fourth quarter as demand for aluminum plunged.
Financial stocks also declined as investors looked to Citigroup Inc. and Morgan Stanley, which could announce a deal as soon as Wednesday to combine their brokerage operations. The potential tie-up underscores the troubles some banks are still having with tattered balance sheets, and a prominent analyst said Citigroup might still need to raise cash. Comments from President-elect Barack Obama that he would consider using some of the remaining money from the government's $700 billion bailout fund added to investors' nervousness about the financial industry.
"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. Monday's decline came on light volume, indicating an absence of buyers, not a rush of sellers.
"The level of anxiety and the level of fear has moderated some, but it sure as heck hasn't turned into optimism," McGinn said.
The Dow Jones industrial average fell 125.21, or 1.46 percent, to 8,473.97 after being down as much as 178 in the final hour of trading.
Broader stock indicators also declined. The Standard & Poor's 500 index fell 20.09, or 2.26 percent, to 870.26, and the Nasdaq composite index fell 32.80, or 2.09 percent, to 1,538.79.
The Russell 2000 index of smaller companies fell 12.50, or 2.60 percent, to 468.80.
Declining issues outpaced advancers by more than 3 to 1 on the New York Stock Exchange, where volume came to 1.31 billion shares compared with 1.16 billion traded Friday.
The market's decline Monday followed its worst week since November. The Dow slid 4.8 percent for the week. Still, the index remains up 12.2 percent from Nov. 20 when it closed at its lowest level since 2003.
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. The rise in the number of people without work has raised concerns about the health of consumer spending, which accounts for more than two-thirds of the nation's economic activity.
Bond prices were mixed Monday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.31 percent from 2.40 percent late Friday. The yield on the three-month T-bill, considered one of the safest investments, was slightly lower from Friday at 0.06 percent.
The dollar rose against other major currencies, while gold prices fell below $820 an ounce for the first time in a month.
Light, sweet crude fell $3.24 to settle at $37.59 a barrel on the New York Mercantile Exchange.
Many investors aren't willing to place big bets on the market without a better read on companies' expectations for the economy. Analysts predict many more companies will be forced to reduce or withdraw their forecasts for the year given how much uncertainty remains about when the economy might start to recover.
"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 also was anxious about comments from Obama. He said Monday he will fundamentally change the way the remaining $350 billion of the financial bailout fund is allocated. He said some relief would be directed toward housing and small business. That added to investors' unease about financial stocks, analysts said.
"Anything that takes away from buying distressed securities is perceived as a negative for the financials," said Richard Campagna, chief investment officer at 300 North Capital. "It's just more uncertainty."
Obama on Monday asked President George W. Bush to request the money so that it can be at the ready when Obama takes office next week. Bush agreed to notify Congress.
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 75 cents, or 6.9 percent, to $10.06. Chevron Corp. fell $2, or 2.8 percent, to $70.82 on the decline in oil.
Citigroup dropped $1.15, or 17 percent, to $5.60, after falling as much as 20 percent on the day. 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." Citi was by far the steepest decliner among the 30 stocks that make up the Dow industrials.
Morgan Stanley fell 27 cents, or 1.4 percent, to $18.79. Among the other big decliners, Bank of America fell $1.56, or 12 percent, to $11.43.
Overseas, Britain's FTSE 100 fell 0.50 percent, Germany's DAX index fell 1.34 percent, and France's CAC-40 lost 1.62 percent. Hong Kong's Hang Seng index dropped 2.83 percent. Markets in Japan were closed for a holiday.