Wall Street Gets Whacked

Updated from 4:23 p.m. EDT

Stocks in the U.S. sold off sharply Thursday as a profit shortfall at Exxon Mobil (XOM Quote) and a downgrade of Citigroup (C Quote) pressured the major averages and more than erased the prior session's gains.

The Dow Jones Industrial Average sank 362.14 points, or 2.6%, to 13,567.87. The S&P 500 lost 40.94 points, or 2.64%, at 1508.44, and the Nasdaq Composite tanked 64.29 points, or 2.25%, to 2794.83.

Two members of the Dow were notable losers, led by Citi, who fell $2.85, or 6.9% to a 52-week low at $38.51 after CIBC World Markets cut its rating on the stock and said it might be facing a huge capital shortfall. Credit Suisse also downgraded Citi.

Several brokers fell in sympathy. Morgan Stanley (MS Quote) tumbled 7.2%, Merrill Lynch (MER Quote) was down 5.8%, Bear Stearns (BSC Quote) lost 5%, and Lehman Brothers (LEH Quote) shed 4.5%.

"Sentiment has clearly turned decidedly negative, with Citigroup's multiple downgrades responsible for additional investor nervousness among financial stocks," said Michael Sheldon, chief market strategist with Spencer Clarke LLC. "Yesterday the market overreacted to the [Federal Reserve] rate cut, but a combo of record high oil and Citigroup news really changed investor's position by 180 degrees today."

Also dropping was Exxon Mobil. The oil giant's stock declined $3.49, or 3.8%, to $88.50 after its latest quarterly report, which showed profits that were 5 cents short of analysts' expectations of $1.75. Weak refining margins were the primary culprit.