Stocks Fall as Bailout Plan Falters
Stocks fell last week as Congress failed to approve a $700 billion bank bailout.
Washington Mutual plunged 96 percent after the lender was seized by regulators. Wachovia and National City erased more than one-third of their value. Allegheny Technologies, CF Industries Holdings and U.S. Steel led raw-material producers lower on fear that a surge in borrowing costs could slow the economy.
The Standard & Poor's 500-stock index dropped 3.4 percent for the week, to 1213.01. The Dow Jones industrial average fell 2.2 percent, to 11,143.13. The Nasdaq composite index lost 4.0 percent, to 2183.34. The Russell 2000 Index of small-company stocks lost 6.5 percent, the most since January, to 704.79.
"The market is holding its breath to wait and see what comes out of Washington," said Malcolm Polley, who manages about $1.2 billion as chief investment officer of Stewart Capital Advisors in Indiana, Penn. "Wall Street has been very good in the last week at telling Congress, 'You've got to get something done or bad things are going to happen.' This is one time where they can't afford to not do anything."
The S&P 500's retreat erased almost half of the 8.5 percent rally on Sept. 18-19, the biggest two-day surge since the 1987 crash. Members of Congress failed to reach a deal after a group of House Republicans said they wouldn't support Treasury Secretary Henry M. Paulson Jr.'s proposal. President Bush said Thursday that a rescue was needed to avert a "long and painful" recession.
The S&P 500 tumbled 22 percent since its October record high on concern that more than $550 billion in credit losses and write-downs at financial firms worldwide, a slowing economy and faster inflation will hurt profits.
Financial shares in the S&P 500 retreated 6 percent this week, fueled by a 12 percent plunge in the S&P 500 Banks Index on Monday, the biggest drop since the gauge's creation in 1989.
Oppenheimer analyst Meredith Whitney lowered her earnings estimates for U.S. banks, predicting home prices could fall an additional 25 percent and saying the government bailout holds "little hope of improving core fundamentals over the near and medium term.
The Treasury will auction $26 billion of three-month bills and $27 billion of six-month bills on Monday. They yielded 1.27 and 1.54, respectively, in when-issued trading. One-month bills will be sold Tuesday.
-- Bloomberg News