Fresh Bank Worries Batter Stocks; Dow Falls Below 8,000
______________________________________________________________
By JACK HEALY
The New York Times
January 21, 2009
As Barack Obama stepped into the presidency on Tuesday, Wall Street walked back to the brink.
Despite widespread optimism about Mr. Obama and a jubilant inaugural celebration, the major indexes plunged more than 4 percent on Tuesday, with the Dow slipping below 8,000, as new fears about the stability of America’s biggest banks roiled the markets.
Stocks started the day lower, fell more than 60 points during Mr. Obama’s address from the Capitol, and deepened their losses during the last hour of trading in a broad sell-off that dragged down leading financial companies by double digits.
It appeared to be Wall Street’s worst Inauguration Day since 1900, according to JPMorgan Chase.
“It’s ugly,” said James W. Paulsen, chief investment officer at Wells Capital Management. “It’s got all the makings of the late November panic.”
At the close, the Dow Jones industrial average was down 332.13 points or 4 percent, to 7,949.09, while the broader Standard & Poor’s 500-stock index was down 5.2 percent or 44.90 points to 805.22. The technology-heavy Nasdaq composite declined 5.7 percent, or 88.47 points, to 1,440.86.
The sell-off on Wall Street adhered to a history of Inauguration Day losses. Of 13 regular inaugurations that have fallen on trading days since 1941, the S.&P. has finished lower on 9, according to Howard Silverblatt, senior index analyst at Standard & Poor’s.
In his inaugural speech, Mr. Obama seemed to suggest that the financial markets should expect greater oversight. “Without a watchful eye,” Mr. Obama said, “the market can spin out of control.”
Financial shares led the way down on Tuesday, falling 9 percent as Great Britain and Canada ratcheted up efforts to address the deepening economic downturn. The Bank of Canada cut its benchmark interest rate by half a percentage point, to 1 percent, after Britain on Monday unveiled another bailout plan that included a measure to increase the government’s stake in the Royal Bank of Scotland to 70 percent.
“It’s a growing lack of confidence, and almost panic, that’s traveling around the world right now,” Michael Holland, chairman of Holland and Company, said.
Shares of Citigroup fell 11 percent and Bank of America fell 17 percent, underscoring investors’ worries about their balance sheets. After the market closed, Citigroup announced that it was cutting its quarterly dividend to 1 cent, following a similar move by Bank of America last week.
In a report, an analyst at Friedman, Billings, Ramsey Group, Paul Miller, wrote that Bank of America would need at least $80 billion to restore capital to required levels.
Last week, the banks reported billions in fourth-quarter losses, and Bank of America secured a second lifeline from the government that included $20 billion in liquidity injections. Citigroup, which has also received billions in federal bailout money, said it would be splitting in two.
Shares of JPMorgan Chase, Morgan Stanley, Wells Fargo and several other banks also dropped by double digits
Shares in the money manager, the State Street Corporation, reached a low Tuesday, after the bank reported a 71 percent drop in fourth-quarter earnings and warned of a difficult year. Shares plunged more than 54 percent.
A swirl of new bailout measures in the United States and abroad, combined with dismal earnings from the big banks have jolted investors and injected new uncertainty into markets. The major indexes slide more than 4 percent last week as gloomy economic reports showed that retail sales were sliding, jobless claims were rising and inflation had fallen to a near standstill in 2008 as the United States fell into a recession.
“That fear that’s creeping back into Wall Street is spreading to the broader market,” said Ryan Larson, senior equity trader at Voyageur Asset Management. “We’re going to have to see some real action plans to get us out of this. We’re going to have to see the new administration step forward and announce some of these plans that are going to kick-start the market.”
Democrats have outlined an $825 billion stimulus package of tax cuts, public-works projects and emergency benefits, and analysts said that investors were eager to see the plan move through Congress.
Markets were lower in Europe and Asia.
Crude oil prices settled at $38.85 a barrel, up $2.34 in New York trading, after briefly dipping below $33 as the February futures contracts expired. Oil prices have tumbled from their summer highs above $145 a barrel on weakening demand for gasoline and other petroleum products.
Copyright 2009 The New York Times Company |
