Stocks Slammed as Financials Suffer

Updated from 2:34 p.m. EDT

Stocks in the U.S. tumbled Monday as anxiety about the financial-services sector, particularly government-sponsored entities Fannie Mae (FNM Quote) and Freddie Mac (FRE Quote), sent the major averages reeling.

The Dow Jones Industrial Average finished down 180.51 points, or 1.6%, to 11,479.39, and the S&P 500 got hammered for 19.60 points, or 1.5%, at 1278.60. The Nasdaq dropped 35.54 points, or 1.5%, to 2416.98.

All of the Dow's 30 components ended the day in negative territory, led by General Motors (GM Quote), which shed 7.4% to $10.35. Financial components American International Group (AIG Quote), Citigroup (C Quote) and Bank of America (BAC Quote) were each down more than 4%.

Stoking investor angst was a Barron's article saying the government will probably have to help troubled mortgage companies Fannie and Freddie raise fresh capital at the expense of taxpayers and shareholders. Fannie lost 22% to $6.15, and Freddie gave back 25% at $4.31.

"For the first time, with oil flat to down, the financials have rolled," said Steven Kroll Sr., managing director at Monness Crespi & Hardt. He said the article detailing further risks for Fannie and Freddie indicates that the problems in the financials have not been fixed yet. "I expect the market, the financials, to correct here for several weeks."

The comeback in financial stocks has been remarkable, given the depth of Fannie and Freddie's recent troubles, wrote Jack Ablin, chief investment officer at Harris Private Bank, in an email. He said the sector was led higher mainly by substantial moves in bond insurer MBIA (MBI Quote), mortgage insurer MGIC (MTG Quote) and Wachovia Bank (WB Quote). MBIA ended the day up 5.4% at $11.83, MGIC fell 4.6% to $8.18 and Wachovia slipped 3.9% to $14.96.