Stocks Plunge on Worries Over Financial Sector
Wall Street tumbled to new lows on Thursday and shares of Citigroup, once the largest bank on Wall Street, dropped briefly below $1 as deepening worries about the financial sector and General Motors sent investors running for cover.
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Today's Business with Jeff Sommer and Vikas Bajaj on the stock market decline. Shares of Bank of America fell more than 11 percent while Citigroup skidded 9 percent to close at $1.02 a share. JPMorgan Chase was down 14 percent, and Wells Fargo lost 17 percent.
“It’s just a continuing self-destructive market where even the slightest good news is considered negative,” said Peter Cardillo, chief market economist at Avalon Partners. “No one is taking a backseat approach. Everyone is just selling.”
The broad sell-off dragged all sectors of the market lower, and peeled back the gains from a one-day rally on Wednesday that had broken a five-day losing streak on Wall Street.
Producers of basic materials like metals and chemicals fell back on Thursday after rising a day earlier on speculation about China’s stimulus spending.
The Dow Jones industrial average closed at 6,594.44, down 281.40, or 4.1 percent — its lowest close since April 15, 1997. The broader Standard & Poor’s 500-stock index was down 4.25 percent, to its lowest close since September 1996, while the technology-heavy Nasdaq index was off 4 percent.
Stocks in Europe also were also off sharply.
Retailers in the United States began releasing February sales results on Thursday morning, more evidence that shoppers had sharply reduced their spending. But the numbers were not as bad as January, and one retailer, Wal-Mart easily topped expectations.
Wal-Mart Stores said February sales rose 5.1 percent, while analysts by Thomson Reuters had expected a 2.4 percent increase. Its stock was up more than 2 percent in late trading.
And the automaker, General Motors, which has borrowed $13.4 billion from the federal government and is seeking billions more, acknowledged in its annual report on Thursday that its survival was in “substantial doubt.” Auto stocks sank across the board while shares of General Motors tumbled 15 percent to $1.87.
“Our recurring losses from operations, stockholders’ deficit and inability to generate sufficient cash flow to meet our obligations and sustain our operations raise substantial doubt about our ability to continue as a going concern,” G.M. said in the filing.
This week, the major automakers reported that their February sales fell more than 40 percent from the previous year as consumers slashed their spending in the face of a rapidly worsening economy.
“You really do wonder how they’re going to keep going with such pathetic sales and massive fields of unsold cars, and what’s going to happen,” said Rob Carnell, chief international economist at ING Financial Markets. “Just kind of seems obvious that this industry has to shrink.”
The Labor Department reported that productivity slumped and wage costs surged in the fourth quarter of 2008. Productivity, defined as output per hour of work, fell at an annual rate of 0.4 percent in the October-December period, even as unit labor costs rose 5.7 percent.
The dollar gained as the European banks would cut rates, making dollar assets relatively more attractive. The Bank of England cut its main rate target by half a percent to 0.5 percent. The European Central Bank cut its main rate to 1.5 percent from 2 percent.
The Federal Reserve has already cut its main rate target to 0.25 percent, and as European rates drop, returns on short-term investments there become relatively less desirable for money managers. The Bank of Japan, the world’s other major central bank, has also set its main market rate near zero in hope of restoring the economy to health.
In Europe, the Dow Jones Euro Stoxx 50 index, a barometer of euro zone blue chips, closed 4.7 percent lower, while the FTSE 100 index in London dropped 3.2 percent. The CAC 40 in Paris was down 4 percent and the DAX in Frankfurt fell 5 percent.
Asian markets were mostly higher. The Tokyo benchmark Nikkei 225 stock average gained 2 percent, while the S&P/ASX 200 in Sydney rose 0.7 percent.
The Shanghai Stock Exchange composite index rose 1 percent. But the Hang Seng index in Hong Kong lost 1 percent.
The euro fell to $1.2537 from $1.2661 late Wednesday in New York, while the British pound fell to $1.4113 from $1.4195. The dollar edged down to 98.06 yen from 99.16 and rose to 1.1712 Swiss francs from 1.1676.
Crude oil futures for April delivery fell $1.77, to $43.61 a barrel in New York trading.
Bond prices rose. The yield on the 10-year Treasury note, which moves in the opposite direction of the price, slipped 16-hundredths of a percentage point to 2.81 percent.
David Jolly contributed reporting.
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