NEW YORK (AP) — The dawn of the Obama presidency could not shake Wall Street from its dejection over the banking industry’s growing problems.
After hearing the new president’s inaugural address Tuesday, investors went back to unloading stocks, sending the major indexes down more than 3 percent and the Dow Jones industrials down more than 300 points. Traders on the floor of the New York Stock Exchange paused at times to watch the inauguration ceremony and Obama’s remarks, but the transition of power didn’t erase investors’ intensifying concerns about the struggling economy.
Obama said the economic recovery would be difficult and that the nation must choose “hope over fear, unity of purpose over conflict and discord” to overcome the worst economic crisis since the Great Depression.
Investors are expecting Washington will be a central part of the economic recovery. But the first few minutes of Obama’s term did little to ease their concerns.
“At this stage, markets in general and bank investors specifically are really looking to government as the way out,” said Jack Ablin, chief investment officer at Harris Private Bank. “Certainly, of just about all of inaugurations that I can recall today’s event probably has the not only the symbolic importance but really tangible importance to the stock market.”
Obama’s speech suggested Wall Street would see greater oversight: “Without a watchful eye, the market can spin out of control,” he said.
Financial stocks led the market lower. Investors already nervous about the state of U.S. banking were rattled Tuesday by the Royal Bank of Scotland’s forecast that its losses for 2008 could top $41.3 billion, the biggest ever for a British corporation. The British government injected more money into the struggling bank Monday. The government also announced another round of bailouts for the country’s banks.
The moves in Britain are designed to insure banks against further losses and are similar to steps the U.S. government has made to protect Citigroup Inc. and Bank of America. Both companies on Friday reported multibillion dollar fourth-quarter losses. Citigroup also said it planned to split its operations in two in an effort to return to profitability.
Meanwhile, the Financial Times is reporting that Bank of America will begin cutting as many as 4,000 jobs in its capital markets unit as it consolidates its operations in that division with those of recently acquired Merrill Lynch & Co.
Investors were uneasily awaiting the bulk of companies earnings reports to see how badly industries beyond banking are hurting.
“Today’s market is under pressure with fourth-quarter earnings season (increasing this week) and it may not have been effectively priced into the market yet,” said Arthur Hogan, chief market analyst at Jefferies & Co.
State Street Corp., which had been performing better than most financial services companies, reported a 71 percent drop in fourth-quarter profit as it was forced to billions of dollars in write-downs on its commercial paper program and investment portfolio. The bank also said it expects 2009 operating earnings to be flat with 2008, below the company’s long-term goal of 10 percent to 15 percent growth. State Street plunged $17.18, or 47 percent, to $19.16.
And Regions Financial Corp., which reported a fourth-quarter loss of $6.24 billion, weighed down by a hefty charge to reflect declining value in its banking reporting unit. Its stock plunged to a 24-year low of $4.67. It edged back up to $4.71, down $1.36, or 22.41 percent.
These reports followed the multibillion dollar losses reported by Bank of America Corp. and Citigroup Inc. on Friday.
In late afternoon trading, the Dow Jones industrial average fell 308.87, or 3.73 percent, to 7,972.35, its lowest level since Nov. 20, when the blue chips closed at 7,552.29, their lowest point in more than five years.
During much of Obama’s address, the average was down about 150 points. The Dow generally declines on Inauguration Day. Traders hadn’t appeared so focused on TV screens since Sept. 29, when the House initially voted against the banking bailout package and the Dow tumbled 777 points.
Broader stock indicators also fell sharply Tuesday. The Standard & Poor’s 500 index fell 40.59, or 4.77 percent, to 809.53, and the Nasdaq composite index fell 76.75, or 5.02 percent, to 1,452.58.
The Russell 2000 index of smaller companies fell 27.68, or 5.93 percent, to 438.77.
Declining issues outnumbered advancers by about 5 to 1 on the New York Stock Exchange, where volume came to 991.4 million shares.
Bond prices fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.35 percent from 2.34 percent late Friday. The yield on the three-month T-bill, in demand because it is considered one of the safest investments, rose to 0.12 percent from 0.11 percent late Friday.
Light, sweet crude rose $2.38 to $38.89 a barrel on the New York Mercantile Exchange.
The dollar was mixed against other major currencies, while gold prices rose.
Richard E. Cripps, chief market strategist for Stifel Nicolaus, said the market’s decline was interrupted by Obama’s inauguration speech but that the markets then continued to trade on the problems in the financial sector.
“There’s just tremendous fear and uncertainty in the banking sector,” Cripps said. “Even those closest to the issue, like executives and analysts, there’s a feeling of tremendous uncertainty. They’re not giving any positive guidance because they just don’t know. Lacking that (certainty) we’re left to our worst fears, and that’s what you’re looking at with bank stocks.”