By Ylan Q. Mui
Washington Post Staff Writer
Tuesday, February 24, 2009
Stock markets tumbled to 12-year lows yesterday as new details of the government's plan to shore up ailing banks failed to quell investors' fears of a long and difficult recovery.
The Dow Jones industrial average closed down 250.89, or 3.4 percent, to 7114.78 -- a level not seen since the bull market of 1997. The Standard & Poor's 500-stock index dropped 26.72, or 3.5 percent, to 743.33, another 1997 level. And the tech-heavy Nasdaq composite index fell 53.51, or 3.7 percent, to 1387.72.
"Basically, it's a disaster," said David Dietze, chief investment strategist at Point View Financial Services. "There's much more pain ahead."
Yesterday's losses came after the Dow plummeted 6.2 percent last week, prompting fresh concern over how low the index of 30 blue-chip stocks might fall before reaching a bottom. Todd Clark, director of equity trading at Nollenberger Capital Partners, said he would not be surprised if the index drops below 7,000, an important psychological benchmark for investors.
"It could happen," he said. "Basically, the market's giving you no vote of confidence on the Obama administration's approach to solving the economic woes the country is facing."
Federal regulators announced yesterday morning that they would offer banks new investment terms, allowing companies to give the government preferred shares that can be converted into common stock. It also promised to give more cash to banks that cannot pass a so-called stress test.
The news caused share prices of some of the nation's biggest banks to soar when the markets opened, spurring a brief rally. But those gains were quickly erased by fears that the move was a step toward nationalization of the banks and by underlying pessimism over the future of the economy. The Dow hit a low of 7105.94 during trading.
"The market continues its struggle to identify clarity in terms of the stimulus and the government's actions," said Andrew M. Brooks, head of U.S. equity trading at T. Rowe Price. "The market wants good news, and they don't see it yet."
President Obama spoke yesterday before the National Governors Association and promised $15 billion of the stimulus package to states to help pay for Medicaid. He is slated to give a State of the Union-style address tonight before Congress, during which he is expected to detail plans to cut the federal deficit in half.
Citigroup was one of the few bright spots yesterday, with shares up 19 cents, or 9.7 percent, to $2.14. Wells Fargo rose 12 cents, or 1 percent, to close at $11.03. Bank of America was up 12 cents, or 3.2 percent, to end at $3.91.
After the markets closed, J.P. Morgan announced that it was cutting its quarterly dividend from 38 cents to 5 cents per share, a move that the firm said would save about $5 billion in common equity annually. It also said it would allow the company to repay the $25 billion it received from the government's financial rescue plan "as soon as is prudent." J.P. Morgan closed down 39 cents, or 2 percent, at $19.51.
Stocks were also down in Europe. In London, the FTSE fell 38 points, or 1 percent, to 3850.73, and Germany's DAX was down 78 points, or 2 percent, at 3936.45. In early trading Tuesday, Japan's Nikkei index was off about 2 percent and Hong Kong's Hang Seng was down nearly 4 percent.