Markets & Finance

Stocks Tumble to 12-Year Lows


Both the Dow and S&P 500 posted their lowest close since 1997 amid anxiety about bank nationalizations and the health of the economy

U.S. stocks tumbled to their lowest closing levels in over a decade Monday, weighed down by lingering worries about the financial sector and the economy. The sell-off sent the S&P 500 index to its lowest close since April, 1997, and the Dow Jones industrial average to its worst finish since May, 1997.

All in all, just another ugly day on Wall Street.

On Monday, the 30-stock Dow Jones industrial average finished lower by 250.89 points, or 3.41%, at 7,114.78, extending last week's 485-point slide to fresh bear-market lows.

The broad S&P 500 index was down 26.72 points, or 3.47%, at 743.33, undercutting its November closing low of 752.

The tech-heavy Nasdaq composite index shed 53.51 points, or 3.71%, to 1,387.72.

The Dow is down nearly 50% from its all-time closing high of 14,164.53 on October 9, 2007. while the S&P is off nearly 53%.

On the New York Stock Exchange Monday, 27 stocks were lower in price for every four that advanced. Nasdaq breadth was 22-5 negative. Trading was active.

Hewlett-Packard (HPQ), IBM Corp. (IBM) and other tech stocks were among the session's weakest performers. Financials, which had led the market higher at the outset, wound up finishing lower, although Citigroup (C) shares gained nearly 10% on a report the government will boost its stake in the company. But the Treasury Dept. says it prefers banks remain in non-government hands. Observers expect Federal Reserve Chairman Ben Bernanke to be quizzed about the issue by a Senate committee on Tuesday when he delivers his semiannual monetary policy testimony.

Bonds and the dollar index rose amid the stock sell-off. Gold futures were lower on profit taking. Oil futures were lower.

How much lower can stocks go? Todd Salamone of Schaeffer's Investment Research believes the current market dip may be worse than the steep declines in November. Why? "Because there is less fear in the market than there was just three months ago ... Moreover, unlike late 2008, investors have little to look forward to in terms of anticipating positive news, other than comments late last week in which the White House sought to counter rumors of bank nationalization."

Quincy Krosby, chief investment strategist at the Hartford (HIG), says the market's main problem is "festering worries about the banks and lack of a plan" from government officials on a financial rescue. "We’re just getting bits and pieces."

The market slide would stop "if investors heard something coherent from Washington that sounds viable," she says. "At this point, investors are just left waiting. The more you wait, the more you see deterioration of the overall economy."

Obama gathered dozens of advisers and adversaries on Monday to discuss how to curb a burgeoning federal deficit laden with Social Security, Medicare and Medicaid obligations. Reuters reported Obama's summit at the White House today is the first meeting toward a strategy to address the long-term fiscal health of the nation. Obama told the gathering that he will cut the U.S. budget deficit by 2013. He told U.S. state governors at an earlier gathering that stimulus payouts will begin this week.

Obama is set to address a joint session of Congress Tuesday.

According to a Wall Street Journal report, Citigroup is in talks with federal officials that could result in the U.S. government substantially expanding its ownership of the struggling bank, according to people familiar with the situation. While the talks could fall apart, the government could wind up holding as much as 40% of Citi's common stock. Bank executives hope the stake will be closer to 25%, the Journal's sources said.

Bank of America (BAC) said Sunday that it isn't discussing a larger ownership stake for the government.

The market remains anxious about prospective nationalizations. "The risk is that the current conditions force Geithner’s hand to put together a hurried and less than comprehensive approach," said Daniel Clifton of the Washington consulting firm Strategas. He added: "Without a turnaround in the economy/housing the government will incrementally increase its equity ownership which continues the risk to common and preferred shareholders moving forward."

According to a CNBC report, American International Group (AIG) already 80%-owned by the U.S., is in talks to secure additional government funds so it can keep operating after next Monday, when it will report the largest loss in U.S. corporate history.

Humana Inc. (HUM) and other Medicare health plan providers tumbled on Monday after the U.S. government proposed a much lower-than-expected payment rate increase for 2010 that sparked fears about the program's growth prospects. The Centers for Medicare & Medicaid Services proposed late on Friday raising payment rates for privately run Medicare Advantage plans by 0.5% next year, far less than analysts expected. Medicare is the U.S. government health program for the elderly. Should the preliminary rates become final, analysts said the insurers will need to cut benefits or increase premiums to maintain their profit margins. Such changes could lead seniors to leave the Medicare Advantage plans for government-run versions.

Ford Motor Co. (F) shares moved higher Monday after the UAW announced that it has reached an agreement with Ford on modifications to the Voluntary Employee Beneficiary Association (VEBA), the union's health care trust for UAW Ford retirees. The union also reached tentative agreement with Ford on other modifications to the 2007 UAW-Ford National Agreement on Feb. 15.

Meanwhile, the Journal reported that outside advisers to the U.S. Treasury have started lining up the largest bankruptcy loan ever, talking with banks and other lenders about at least $40 billion in financing for General Motors (GM) and Chrysler LLC, in case the two auto makers need it, said several people familiar with the matter.

Steven Rattner, co-founder of private-equity firm Quadrangle Group, is joining the Treasury Department as a counselor to Treasury Secretary Timothy Geithner, and will lead a team advising the Obama administration on the troubled automobile sector, according to a person briefed on the matter cited in a Journal

There were no significant U.S. economic data reports on Monday.

European Central Bank President Jean-Claude Trichet warned that the euro zone's financial system is going through challenging times, as financial markets and the real economy are dragged in a downward spiral. The WSJ reported he reiterated the ECB and national central banks in the euro zone stand ready to play a larger role in supervising the regulation of the overall banking and financial system.

Reuters reports Britain will inject billions of pounds into state-owned Northern Rock bank to try to unlock lending and help the economy emerge from recession, according to finance minister Alistair Darling. The plan to get Northern Rock lending again forms part of a package expected this week designed to get credit in Britain flowing again after the economy shrank by 1.5% in the last three months of 2008.

Among Moday's other stocks in the news, (UBS) U.S. tax probe dilemma remains a burden as repercussions of its $780 million fine in the U.S. to avert criminal charges due to tax fraud remain at the forefront of investors' minds. S&P MarketScope Europe also reports that there is pressure on UBS chairman to step down over his handling of the situation.

Shares of Goodyear Tire & Rubber (GT) slumped Monday after KeyBanc Capital reportedly downgraded the stock to underweight from hold.

Garmin Ltd. (GRMN) posted $0.78 vs. $1.39 fourth-quarter GAAP EPS on a 14% sales drop. The company said it will not offer specific guidance for 2009 until the outlook for the year becomes clearer.


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