Optimism in Washington, Pessimism on Wall Street
President Barack Obama took office Tuesday urging Americans to choose hope over fear, but on Wall Street, fear was making a comeback.
Stock markets had one of their worst Inauguration Day losses in more than a century, skidding more than 4 percent. Financial companies plunged more than 15 percent, their biggest one-day drop in nearly two decades, as investors worried that the troubles facing the country’s biggest banks might be larger and deeper than anyone had thought.
Even after record corporate write-downs and a $700 billion bailout to shore up the financial system, banks are still reporting huge losses, lining up for new government lifelines and cutting their profit outlooks.
The State Street Corp., one of the world’s largest institutional money managers, reported a 71 percent drop in fourth-quarter profit, sending its share price down 59 percent.
The bigger economic picture is still a landscape of “gathering clouds and raging storms,” Obama said Tuesday. Housing values are falling faster, trade is shrinking and the unemployment rate, now at 7.2 percent, is expected to hit 9 percent or more.
“At the end of the year, we saw some light at the end of the tunnel,” said Art Hogan, chief market strategist at Jefferies & Co. “Unfortunately, we found out that the light at the end of the tunnel was a train.”
Wall Street opened down and slid steadily lower throughout the day. The Dow Jones industrial average fell 332.13 points, or 4 percent, to 7,949.09. The Standard & Poor’s 500-stock index tumbled 5.28 percent, or 44.90 points, to 805.22. The Nasdaq composite index declined 5.78 percent, or 88.47 points, to 1,440.86.
The losses erased all of Wall Street’s gains from the start of the year and brought stocks within reach of their lows of Nov. 20.
Some analysts said they thought that Wall Street might now be headed there again. “It’s ugly,” said James W. Paulsen, chief investment strategist at Wells Capital Management. “It’s got all the makings of the late-November panic.”
Financial shares went into a free fall on Tuesday. Shares of Citigroup, once the largest American bank, fell 20 percent, or 70 cents, to $2.80 a share, and the bank cut its quarterly dividend to 1 cent. Bank of America fell 29 percent, or $2.08, to $5.10. Shares of JPMorgan Chase, Morgan Stanley, Wells Fargo and several other banks also dropped by double digits.