Market Finds 11-Year Low Despite Bank Rally
Wall Street's woeful year continued Monday, with stocks tumbling to their lowest close in 12 years despite a rally in the financial sector.
Stocks dropped more than 3 percent across the board, ending at levels not seen since May 1997.
While investors were cheered early by news that the government was not seeing complete nationalization of the banking industry, economic weakness brought down tech leaders and the rest of the market followed. The market rallied off the open, but then quickly moved lower and closed at its low point for the day.
"You get this enthusiasm and then reality sets in," said Bradford Pine, investment adviser at Cantella and Co. of Boston. "You keep hearing bits of news and you have hope, and then the air seems to let out and everybody loses confidence."
While the Dow has blown through its November lows, the S&P 500--the index most closely watched on the New York Stock Exchange trading floor--just edged past its low of 752. Traders were watching the 741 level to see where the market would head next.
"If we can keep bottoming at this 741 and hold at these levels we could see a significant rally," Pine said. "It may just be a bear market rally, but that is something that you could see. In this market, you can't believe in what you just believed in because it moves that crazily."
>>Video: Road to Nationalization
Apple and Intel were among the biggest Nasdaq losers and hit the other indexes as well.
Microsoft posed a significant drag on all three indexes, while Alcoa was the biggest weight on the Dow.
News about Citigroup, which particularly boosted Bank of America , led momentum for banks. Wells Fargo also was higher after wavering through the earlier part of the day.
Track the Dow 30 stocks in real timeTaxpayers could soon own up to 40 percent of Citi’s common stock, though the stake likely would be closer to 25 percent, sources told CNBC.
Citi was up nearly 10 percent, though off its premarket highs of nearly 40 percent, as the government said it was not looking to nationalize the institution. Other banks also were gaining after the White House said it would ensure that the system would have adequate capital to provide liquidity for economic growth.
Though the government taking a stake in Citi would seem to be dilutive for the company's shares, investors saw the move as a positive for the company's stability.
The enthusiasm spread through the sector, though banks grew weaker as the day progressed.
JPMorgan Chase closed lower by nearly 2 percent and then announced a dividend cut after the closing bell.
Also in the banking sector, in Europe Royal Bank of Scotland is to announce a restructuring this week to create a non-core division into which unwanted assets will be placed, according to a banking industry source. RBS shares were 15 percent up in mid-morning trade.
On the downside in financials, shares of UBS continued to tumble as US tax authorities push to examine the records of 52,000 wealthy Americans with accounts at the Swiss bank. UBS shares have lost about a quarter of their value in the past month.
President Obama addressed some of the concerns over the state of the economy while delivering his budget this week. Aside from the economic crisis, health care and the budget deficit will also be on the president’s agenda.
Speeches from federal officials have generally proven to be a bane for the markets, but the averages held fairly steady as Obama spoke in remarks carried live on CNBC.com.
Outside of banks, General Motors led gainers on the Dow 30 index.
Only four Dow stocks were positive in the afternoon and GM was the only non-financial in green numbers.
The future of GM and Chrysler remained under discussion as outside advisers to the Treasury sought contingency financing options for the automakers, with investors showing optimism that a deal could be struck.
On the S&P 500, there was little to get excited about outside of banking, though homebuilder D.R. Horton benefitted from the notion that the government would take action to boost liquidity and thus provide capital to buy new homes. The leading percentage gainer on the broad-based market indicator was Fifth Third Bancorp , which joined in the banking momentum.
Dow component AT&T saw its shares fall after it said it would invest $1 billion this year to expand its global telecommunications network.
Energy stocks also were lower as crude prices despite production slowdowns and last week's unexpected drop in stockpiles. ConocoPhillips was among the leading droppers in the group even amid an upgrade from Deutsche Bank.
Market breadth was sharply negative, with losers beating gainers 6 to 1 but on modest volume, with 1.5 billion shares trading hands. The New York Stock Exchange recorded 391 new lows against just two new highs.