U.S. Government Acts, but Losses Pile Up
U.S. stocks declined, sending the Standard & Poor's 500-stock index and Dow Jones industrial average to 12-year lows, as the government rescued Citigroup and shares of drugmakers and insurers fell on President Obama's health-care plan.
Citigroup slid 23 percent, extending losses over the past year for what was once the largest U.S. bank to 94 percent. Humana led the health-care industry's retreat on concern Obama will cut Medicare payments to insurers and raise rebates drugmakers must provide to Medicaid recipients. Sallie Mae, the largest U.S. student lender, tumbled 40 percent as the president's first budget called for an end to loan subsidies.
"Before the end of a bear market, every group gets taken out and shot, and that's what we're experiencing here," said Robert T. Lutts, president of Cabot Money Management in Boston. "The prospect of a recovery is good, but not in the short term."
The S&P 500 dropped 4.5 percent, to 735.09, its lowest close since December 1996. The Dow fell 302.74 points, or 4.1 percent, to 7062.93, its lowest close since May 1997. The Nasdaq composite index fell 4.4 percent, to 1377.84.
Financial stocks as a group rose despite Citigroup. Federal Reserve Chairman Ben S. Bernanke said he hoped to avoid government control of banks in favor of a public-private partnership the United States would eventually exit.
Banks are driving S&P 500 companies as a group to their first quarterly loss. The 74 financial companies in the index that have reported fourth-quarter results lost a combined $50.5 billion, their third straight quarterly shortfall, according to data compiled by Bloomberg.
Profit fell 37 percent on average at the 457 companies in the S&P 500 that have reported quarterly results since Jan. 12. Those reporting next week include American International Group, the insurer in talks to restructure its $150 billion government bailout, and Costco, the nation's biggest warehouse-club chain.
Yields on Treasury securities climbed as the government sold a record $94 billion of new debt to finance a budget deficit that's expected to widen to a record $1.75 trillion this year. The benchmark 10-year note's yield rose to 3.02 percent, from 2.79 percent.
The Treasury will auction $31 billion of three-month bills and $29 billion of six-month bills on Monday. They yielded 0.28 percent and 0.46 percent, respectively, in when-issued trading. One-month bills will be sold Tuesday.
-- Bloomberg News