Stocks Fall 3% on Auto, Banking Worries
Tuesday, March 31, 2009
Stock markets slumped early and stayed negative yesterday because of fears of bankruptcies in the auto industry and fresh concern over the health of the financial sector.
The three major U.S. indicators closed down about 3 percent. The blue-chip Dow Jones industrial average dropped 254 points to 7522.02, while the broader Standard & Poor's 500-stock index fell 28 points to 787.53. The tech-heavy Nasdaq composite index declined 43 points, to 1501.80.
"Markets are fairly susceptible to setbacks," said Steven Wieting, Citigroup director of economic and market analysis. "There are still policy-oriented uncertainties."
The sharp declines came after a three-week rally lifted stocks out of lows not seen for 12 years. Still, analysts said yesterday morning's losses -- along with more gloomy monthly employment data expected later this week -- were unlikely to pull the markets down that far again.
"I think we made a bottom," said Peter Cardillo, chief market economist with New York-based Avalon Partners. "I don't think we are going to breach the bear market lows that we had."
The resignation of General Motors chief executive G. Richard Wagoner Jr., made at the request of the White House, rattled investors. In a news conference yesterday, President Obama also said the company has 60 days to come up with a new restructuring plan that will likely require it to cut more jobs and product lines. GM stock closed down 25 percent, or 92 cents, to $2.70.
Chrysler, which the administration thinks cannot survive as a stand-alone company, must reach an agreement to partner with the Italian automaker Fiat in the next 30 days to become eligible for as much as $6 billion in additional federal loans. The automaker is closely held, but shares of minority owner Daimler fell 9 percent, or $2.40, to $25.16.
The White House also indicated that some form of bankruptcy could be possible for the nation's largest automakers.
Shares of Ford, which is not participating in the bailout, fell 3 percent, or 8 cents, to $2.76.
"It's dampening market sentiment here," Cardillo said of the auto industry's troubles. "This just throws in a whole new perspective now in the sense that who's next?"
In addition, Treasury Secretary Timothy F. Geithner said over the weekend that banks might need even more government aid. Financial stocks plunged 5.6 percent amid heavy trading, with Citigroup dropping 12 percent and Bank of America falling nearly 18 percent. The sector had a strong rally last week on news that the government would partner with private entities to help remove toxic assets from banks' balance sheets.
"We've held all along that the banks and the economy are still working their way through a grinding, difficult period," said Fred Dickson, chief market strategist for D.A. Davidson & Co. "We may still see some nasty surprises before this is all over."
The specter of bankruptcies in the U.S. auto industry coupled with renewed concern over the banks sent world markets into a tailspin, particularly in Asia. Japan's Nikkei 225 plummeted 4.5 percent, or 391 points, to 8236.08. Hong Kong's Hang Seng index dropped 4.7 percent, or 663 points, to 13,456.
Staff writers William Branigin and Peter Whoriskey contributed to this report.