The government's expanded stake in Citi, along with a hefty dividend cut by GE, sparked selling Friday
U.S. stocks closed lower Friday as concerns about the banking industry and economy continued to diminish investors' buying interest in equities. Keeping the market under pressure was news that the government will take a large stake in Citigroup (C), General Electric (GE) will cut its stock dividend by two-thirds, and fourth-quarter U.S. gross doemstic product was revised sharply lower.
Shares of Citigroup tumbled 39%, Bank of America (BAC) fell 25%, and Morgan Stanley (MS) slid 8%. Meanwhile, bargain hunting produced small gains in Google (GOOG), Apple (AAPL), and Research in Motion (RIMM).
On Friday, the 30-stock Dow Jones industrial average lost 119.15 points, or 1.66%, to 7,062.93. The broad S&P 500 index shed 17.74 points, or 2.36%, to 735.09. The tech-heavy Nasdaq composite index was lower by 13.63 points, or 0.98%, at 1,377.84.
Treasuries were lower following reports U.S. fourth-quarter gross domestic product was revised to minus 6.2% from minus 3.8%, much worse than expected; the February Chicago purchasing managers' index rose to 34.2 from 33.3 in January, and the University of Michigan Consumer Sentiment index was revised to 56.3 from
previous 56.2 reading; it was 61.12 in January.
The dollar index was higher. Gold futures flattened. Oil futures were lower.
"The financials remain a big noose around the stock market, and with each passing week, the knot seems to get tighter," says S&P chief technical strategist Mark Arbeter.
Citigroup said on Friday it reached a deal that will give the government up to a 40% stake in the struggling bank. The government currently has an 8% stake. The company also said it recorded a goodwill impairment charge of about $9.6 billion due to deterioration in the financial markets.
The government will convert some of its preferred stock in Citi to common shares in the New York-based bank along with other private investors. The Treasury Dept., in a news release, said it would "convert up to the $25 billion of preferred stock issued under the Capital Purchase Program."
Remaining preferred stock "would be converted into a trust preferred security of greater structural seniority that would carry the same 8% cash dividend rate as the existing issue," the release said.
General Electric said its board authorized a plan to reduce the company's quarterly dividend to $0.10 from $0.31 per share, effective for the second half of 2009. GE notes the decision will preserve about $9 billion for the company on an annualized basis. The shares fell 6.5% Friday.
U.S. fourth-quarter GDP was revised down to -6.2% for its preliminary reading, well below the forecast median of -5.3% and the advanced reading of -3.8%, reports Action Economics. The fourth-quarter personal consumption expenditure (PCE) price index sank a record -5.0% for the quarter from -5.5% previously, while core prices rose 0.8% vs +0.6%. Business investment tanked 21.1%, equipment and software spending dove 28.8% and housing investment declined 22.2%.
"Overall, it remains clear that the economy hit a wall in the fourth quarter, keeping down-force on stocks and yields, and capping the dollar for the moment," notes Action Economics. "We will keep our first-quarter real GDP forecast at -5.0% until we get the consumption figures in Monday's personal income report, though there is downside risk to our estimate if the employment figures at the end of the week prove as ugly as many now fear."
Indeed, worries abound about the February employment report, scheduled for release Mar. 6. So far in February, jobless claims are running at 642,000 per week, a level historically consistent with a monthly payroll decline near 700,000 workers. If that’s the case, total job losses since December, 2007 would total 4.3 million, nearly 3 million of which would have occurred since September.
The Reuters/University of Michigan U.S. consumer sentiment final February reading was steady at 56.3, about the same as 56.2 in the preliminary reading though below 61.2 in January, and 70.8 a year ago. It was in line with expectations. The current conditions index dipped to 65.5 from 67.1 in the preliminary reading and 66.5 in January. The future outlook index edged up to 50.5 from the preliminary 49.1 figure, though below 57.8 in January.
U.S. Chicago PMI improved to 34.2 in February after dipping to a multi-decade low at 33.3 in January. It was a bit better than the 33.5 that markets had expected. However, the internals were more mixed. The employment index dropped to 26.2 from 34.8, while new orders held at 30.6, about the same at the 30.7 reported last month. Prices paid slipped to 37.8 from 39.8.
Market players were looking ahead to Monday's reports on January personal income, the Institute for Supply Management's manufacturing index for February, and construction spending in January.
Traders were pondering President Obama's $3.6 trillion budget. Big political fights lie ahead, notes S&P MarketScope.
Reuters reported the heads of the World Bank, the European Bank for Reconstruction and Development (EBRD) and European Investment Bank (EIB) said they would seek solutions to an economic crisis in eastern and central Europe as they launched a joint program to lend up to 24.5 billion euros ($31.2 billion) in the region. The action plan by comes as European Union members prepare to discuss aid to banks at an emergency summit on Sunday. The banks said the two-year plan would provide quick, large-scale financing to banks and ensure that companies, especially small- and medium-sized enterprises, get access to capital.