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Financials Lead Selloff as Obama Rattles Street

Published: Thursday, 21 Jan 2010 | 3:51 PM ET

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By: Cindy Perman
CNBC.com

Stocks fell sharply Thursday, led by financials, as President Obama rattled the market with plans to crack down on Wall Street risk taking.

The Dow dropped about 200 points, or 2 percent. Coupled with the prior session's loss, this is on track to be the biggest two-day decline since August.

Major U.S. Indexes

.DJIA

.NCOMP

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President Obama proposed new limits on the size and trading practices of big banks, saying he wanted to prevent a return to the "old practices" that led to the financial meltdown.

"While the financial system is far stronger today than it was one year ago, it is still operating under the exact same rules that led to its near collapse," Obama said in a statement.

FOR INVESTORS

Big banks were crushed by Obama's remarks: Bank of America [BAC Loading... () ], Morgan Stanley [MS Loading... () ], JPMorgan [JPM Loading... () ] and Goldman Sachs [GS Loading... () ] were all down about 5 percent.

The president's comments so rattled the sector that it overshadowed Goldman Sachs's [GS Loading... () ] stellar results: The bank blew past expectations with earnings of $8.20 a share — a full $3 higher than analyst estimates.

The impact was tempered by comments by Rep. Barney Frank, chairman of the House financial-services committee, a few hours later on CNBC. Frank said he would support bank-rule changes—but only over a longer time frame, which he said would be in the range of "three to five years."

Major indexes pared their losses after Frank's comments.

Regional banks, which wouldn't really be affected by Obama's new rules, continued to shine after some encouraging earnings reports from Fifth Third and KeyCorp. Fifth Third [FITB Loading... () ] reported a much smaller-than-expected loss and, like Bank of America a day earlier, noted an improvement in credit trends. KeyCorp [KEY Loading... () ] said its loss narrowed and also noted an improvement in economic conditions.

Regional banks were some of the top (and only) gainers on the S&P 500, including Comerica, SunTrust, Fifth Third, Huntington Bancshares and KeyCorp, and several were at new 52-week highs, including Fifth Third, Comerica and SunTrust.

In fact, it's been quite a year so far for regional banks. While the broader market was stumbling through the first few weeks of 2010, most regional banks were enjoying double-digit percentage gains: Zion and Synovus are up more than 40 percent, while KeyCorp, Regions Financial and Marshall & Ilsley are up more than 30 percent. By comparison, Bank of America is up just 3 percent, while Citi, Morgan Stanley, JPMorgan and Goldman Sachs are all lower.

REGIONAL BANK STARS

PNC Financial Services [PNC Loading... () ] is an interesting story in the sector: It's one of the strongest survivors of the financial crisis and its stock is up 11 percent this year. Plus, it beat its earnings target today. But the stock is off 4 percent today as the company said it set aside more money for loan losses and hasn't yet given a timeframe for paying back government bailout money.

Worries about China also loomed large over the market, even as China's GDP jumped 10.7 percent in the fourth quarter.

The dollar was stronger as the euro fell on concerns over Greece and other European nations.

EBay [EBAY Loading... () ] led the Nasdaq 100 after the online auctioneer beat estimates thanks to a healthy holiday shopping season and gave a rosy outlook.

Still to come: Earnings after the bell from chip maker Xilinx.

Apple [AAPL Loading... () ] ticked higher amid anticipation of an announcement from the company about a new tablet e-reader.

Starbucks [SBUX Loading... () ] beat estimates and posted its first quarterly same-store sales gain in two years and said its ready to explore the European market.

The Dow is coming off its biggest one-day percentage loss of the new year, and hasn't had four consecutive triple-digit moves since May 2009, one of the first few months of the market's recovery rally.