Banking problems drain stock market of hope
By TIM PARADIS Associated Press
Jan. 20, 2009, 8:11PM
Jan. 20, 2009, 8:11PM
NEW YORK — The dawn of the Obama presidency could not shake the stock market from its dejection over the rapidly deteriorating state of the banking industry.
Financial stocks, many of them falling by double-digit percentages, led a huge drop Tuesday on Wall Street that left the major indexes down more than 4 percent and the Dow Jones industrials down 332 points.
Although traders on the floor of the New York Stock Exchange paused to watch the inauguration ceremony and Obama’s remarks, the transition of power didn’t erase investors’ intensifying concerns about struggling banks and their effect on the overall economy.
The market’s angst, which began with multibillion-dollar losses reported last week by Bank of America Corp. and Citigroup, intensified after the Royal Bank of Scotland’s forecast that its losses for 2008 could top $41.3 billion.
The collapse in bank stocks was swift Tuesday: State Street Corp. plunged 59 percent, Citigroup fell 20 percent and Bank of America lost 29 percent. Royal Bank of Scotland fell 69 percent in New York trading.
The shrinking value of bank stocks means the financial industry accounts for less than 10 percent of the Standard & Poor’s 500 index for the first time since 1992. At the end of 2006, banks made up 22 percent of the stock market benchmark.
And the market’s retreat Tuesday means Wall Street has eaten through most of the advance it made from Nov. 20 through Jan. 6.
The S&P 500, which had been up as much as 24 percent, is now up only 7 percent from its November low.
Fears about banking eclipsed the shift in Washington. Royal Bank of Scotland’s forecast for what would be the biggest loss ever for a British corporation left investors fearful that governments would have to nationalize banks to keep them from collapsing.
The British government injected more money into the struggling bank Mon- day and announced another round of bailouts for the country’s banks.
State Street and Regions Financial Corp., a bank with branches primarily in the Southeast, both reported big earnings drops Tuesday.
Acknowledging the global economy’s woes, Obama suggested Wall Street would see greater oversight: “Without a watchful eye, the market can spin out of control,” he said in his address outside the Capitol.
The Dow Jones industrial average fell 332.13, or 4 percent, to 7,949.09, its lowest close since Nov. 20, when the blue chips ended at 7,552.29, their lowest point in more than five years. It was also the blue chips’ biggest drop since Dec. 1. During much of Obama’s address, the average was down about 150 points.
The Dow’s showing was its worst in the postwar era for an Inauguration Day; it has fallen on about three-quarters of Inauguration Days, according to Dow Jones & Co.
Broader stock indicators also fell sharply Tuesday. The Standard & Poor’s 500 index fell 44.90, or 5.28 percent, to 805.22, and the Nasdaq composite index fell 88.47, or 5.78 percent, to 1,440.86.
Light, sweet crude for February delivery rose $2.23 to settle at $38.74 per barrel on the New York Mercantile Exchange.
The March contract, where the vast majority of trading took place, fell $1.53 to settle at $40.68.
Financial stocks, many of them falling by double-digit percentages, led a huge drop Tuesday on Wall Street that left the major indexes down more than 4 percent and the Dow Jones industrials down 332 points.
Although traders on the floor of the New York Stock Exchange paused to watch the inauguration ceremony and Obama’s remarks, the transition of power didn’t erase investors’ intensifying concerns about struggling banks and their effect on the overall economy.
The market’s angst, which began with multibillion-dollar losses reported last week by Bank of America Corp. and Citigroup, intensified after the Royal Bank of Scotland’s forecast that its losses for 2008 could top $41.3 billion.
The collapse in bank stocks was swift Tuesday: State Street Corp. plunged 59 percent, Citigroup fell 20 percent and Bank of America lost 29 percent. Royal Bank of Scotland fell 69 percent in New York trading.
The shrinking value of bank stocks means the financial industry accounts for less than 10 percent of the Standard & Poor’s 500 index for the first time since 1992. At the end of 2006, banks made up 22 percent of the stock market benchmark.
And the market’s retreat Tuesday means Wall Street has eaten through most of the advance it made from Nov. 20 through Jan. 6.
The S&P 500, which had been up as much as 24 percent, is now up only 7 percent from its November low.
Fears about banking eclipsed the shift in Washington. Royal Bank of Scotland’s forecast for what would be the biggest loss ever for a British corporation left investors fearful that governments would have to nationalize banks to keep them from collapsing.
The British government injected more money into the struggling bank Mon- day and announced another round of bailouts for the country’s banks.
State Street and Regions Financial Corp., a bank with branches primarily in the Southeast, both reported big earnings drops Tuesday.
Acknowledging the global economy’s woes, Obama suggested Wall Street would see greater oversight: “Without a watchful eye, the market can spin out of control,” he said in his address outside the Capitol.
The Dow Jones industrial average fell 332.13, or 4 percent, to 7,949.09, its lowest close since Nov. 20, when the blue chips ended at 7,552.29, their lowest point in more than five years. It was also the blue chips’ biggest drop since Dec. 1. During much of Obama’s address, the average was down about 150 points.
The Dow’s showing was its worst in the postwar era for an Inauguration Day; it has fallen on about three-quarters of Inauguration Days, according to Dow Jones & Co.
Broader stock indicators also fell sharply Tuesday. The Standard & Poor’s 500 index fell 44.90, or 5.28 percent, to 805.22, and the Nasdaq composite index fell 88.47, or 5.78 percent, to 1,440.86.
Light, sweet crude for February delivery rose $2.23 to settle at $38.74 per barrel on the New York Mercantile Exchange.
The March contract, where the vast majority of trading took place, fell $1.53 to settle at $40.68.