Stocks Slump on Corporate Woes; Indexes Fall by 3.4%

[Guest guest]

http://www.nytimes.com/2009/02/24/business/24market.html?hp

Stocks Slump on Corporate Woes; Indexes Fall by 3.4%

By JACK HEALY

Published: February 23, 2009

Investors called it another day of water-torture declines on Wall

Street: drop, drop, drop.

A broad sell-off sent Wall Street staggering lower in the last hour

of trading on Monday as worries about the banking system continued to

worry investors. The Dow industrial average was down 250.89

points at the close while the Standard & Poor's 500-stock index, a

broader gauge of the market closed at its lowest level since April

1997.

Losses piled up in technology companies like Apple, Google and I.B.M.

and industrial companies like DuPont, Caterpillar and the aluminum

maker Alcoa. But in a reversal, battered shares of Citigroup and Bank

of America were trading higher late in the day, and the financial

sector was holding up better than the broader markets.

With worries growing about the stability and solvency of the

country's big banks, the Treasury Department tried to reassure

jittery investors with a message supporting the banking system and

laying out details of the coming " stress tests " of major banks. The

message did not calm anyone.

After a brief rise in early trading, stock markets fell into the red

and sank lower throughout the afternoon. The Dow industrial

average closed down 3.4 percent to 7.114.78 while the broader S. & P.

500 fell 3.47 percent or 26.72 points to 743.33. The technology heavy

Nasdaq was down 3.7 percent or 53.51 points to 1,387.72 as shares of

technology companies turned lower.

Shares of Microsoft, Hewlett-Packard, Google and I.B.M. all fell amid

concerns about how the technology sector would hold up as the economy

spins lower. Companies that make basic materials like steel,

chemicals and plastic also sank. Crude oil fell $1.92 to $38.11 a

barrel, scaling back some recent gains, and gold prices also fell

back slightly to $997 an ounce.

The day's declines continued the downward momentum of a brutal week

that sent the major indexes down more than 6 percent.

With America's banking system facing a round of " stress tests, " the

prospect of greater governmental control and an uncertain future, the

government tried to assure investors early Monday that it would stand

behind the banking system, and that it would provide additional

temporary aid to banks.

" The government will ensure that banks have the capital and liquidity

they need to provide the credit necessary to restore economic

growth, " the Treasury, the Federal Deposit Insurance Corporation and

other agencies said in an unusual joint statement. " Moreover, we

reiterate our determination to preserve the viability of systemically

important financial institutions so that they are able to meet their

commitments. "

The Treasury statement added that major banking institutions

were " well capitalized. "

But analysts said investors remained worried about how America's

biggest banks would deal with the troubled assets on their balance

sheets, and their prospects for weathering a prolonged economic

contraction. Shares of Wells Fargo, Citigroup and Bank of America

stayed positive, but other financial companies like Stanley

and Goldman Sachs turned negative.

Analysts said that after fevered speculation last week about bank

nationalization, many investors now expect the government to move in

that direction, despite statements from the White House supporting a

privately held banking system. Stock markets dropped on Friday amid

concerns that a broad government takeover could wipe out financial

shareholders.

Now, with the government set to begin the " stress tests " on

Wednesday, investors want to know which banks will be deemed healthy

and which will not, analysts said. Of most pressing concern are big

banks including Citigroup, Bank of America, Wells Fargo and JP

Chase, followed by regional chains.

" We need to know how they stand right now, " said Dave Rovelli,

managing director of trading at Canaccord . " The uncertainty of

waiting for the results of these stress test is just killing the

markets. "

Three weeks ago, stock markets tumbled after the Treasury Department

announced plans to form a public-private partnership to take troubled

mortgage-related assets off the balance sheets of banks. Investors

said the government's plans were short on details and left too much

uncertainty about how those assets would be valued, or how private

investors would be enticed to bid on them.

European markets slipped in late trading to close down. The FTSE 100

in London fell 1 percent while the DAX in furt was down 2

percent.

The losses on Wall Street came one week after the Dow sank to its

lowest levels in six years on growing fears about banks across Europe

and the United States.

By the end of trading on Friday, the Dow had tumbled 6.2 percent for

the week, its worst since October, and had sunk to its lowest levels

in six years. The S. & P. 500 fell 6.5 percent, dropping below 800,

but was still slightly above its bear-market lows of Nov. 20.

Absent a detailed blueprint forward from Washington or some

unexpectedly positive economic news, analysts said they expect the

markets to tunnel farther down, with the S. & .P. 500 retesting its

Nov. 20 lows of 752. Several analysts said they still have not seen

signs of capitulation, a frenzy of high-volume selling, that often

signals the bottom of a bear market.

" The technicians now have control of this market, " said Sam Stovall,

chief investment strategist at Standard & Poor's Equity

Research. " People are saying, `Where do we go now? We don't know

what's next.' "