Posted on March 2, 2009. Filed under: News And Politics... |

…and we can all thank the mighty Obama and his stimulus package…

New York Times
Published: March 2, 2009

Investor concerns about financial companies and worries about Friday’s unemployment report continued to erode the markets on Monday as the Dow Jones industrial average fell below 7,000 for first time since October 1997.

The government on Monday morning agreed to provide another $30 billion to the insurance giant, American International Group, which also reported a $61.7 billion loss. On Friday, Washington took a larger stake in Citigroup.

“It’s pretty despondent everywhere,” said Dwyfor Evans, a strategist at State Street Global Markets in Hong Kong. “O.K., there are signs that some of the leading indicators have stabilized to some extent, but it’s at a very, very low level, and we’re not seeing corporate investment picking up, or consumers starting to spend again — in other words, the traditional mechanisms by which economies come out of a recession are absent at this time.”

Just after 3 p.m., the Dow was down 269 points, or 3.8 percent, while the Standard & Poor’s 500-stock index declined 4 percent, but remained just above the 700 mark. The Nasdaq fell 3.7 percent.

“Another day, another 200 points,” David Dietze, chief investment strategist at Point View Financial Services, said, comparing the daily markets to water torture.

The decision by many companies to trim dividends — one of the remaining incentives for owning stocks — was contributing to the sell-off, Mr. Dietze said. Earlier Monday, the large regional bank PNC Financial Services Group cut its dividend 85 percent and the International Paper Company cut its by 90 percent. Last week, the General Electric cut its dividend 68 percent, and JPMorgan Chase reduced its dividend 87 percent.

Looking ahead, he said: “All eyes are on that Friday unemployment report.”

“We could be in for a shocker,” he said. Economists expect a loss of 675,000 jobs in February, following a decline of 598,000 in January. The unemployment rate is expected to rise to 8 percent, from 7.6 percent.

The declines on Monday were across the board, led by the banking and basic materials sector.

Citigroup was down 16.6 percent while Bank of America down 11.1 percent. JPMorgan Chase declined 5.7 percent. The S.&P. financial sector was down 5.2 percent overall.

BNP Paribas fell 8.3 percent, Royal Bank of Scotland fell 2.5 percent and UBS fell 10.6 percent in Europe, while Mitsubishi UFJ fell 6.9 percent and Mizuho Financial Group 3.7 percent in Tokyo.

HSBC Holdings, the global British bank, fell 18.7 percent after saying it would seek to raise nearly $18 billion in new capital from shareholders and shut down its American consumer lending business.

Shares of A.I.G. were 16.6 percent higher on the strength of the latest government assistance.

Mr. Dietze said that investors were also concerned about the message that they were hearing from governments. In Europe, over the week, stronger countries refused to come to the aid of smaller, struggling governments. And out of Washington, he said, the message continues to be inconsistent. The Senate has delayed confirmation of some members of the administration’s economic team, and the government has yet to value the toxic mortgage assets it has accepted from financial institutions.

“As bad as things are, they can still get worse, and get a lot worse,” Bill Strazzullo, chief market strategist for Bell Curve Trading, told The Associated Press. Mr. Strazzullo said he believed there was a significant chance the S.&P. 500 and the Dow will fall back to their 1995 levels of 500 and 5,000, respectively.

The “game-changer,” he told The A.P., will be the housing market and whether it can stabilize.

Crude oil settled at $40.70 a barrel, down $4.06 in New York trading.

Bond prices rose Monday as investors sought safety while the yield on the three-month T-bill fell slightly.

Wall Street followed both Europe and Asia lower. In economic news on Monday, personal spending rose 0.6 percent in January and incomes rose 0.4 percent, while construction spending fell 3.3 percent. Manufacturing contracted in February for the 13th month, but at a slower pace than expected.

The Dow Jones Euro Stoxx 50 index, a barometer of euro zone blue chips, was down 4.7 percent, while the FTSE 100 index in London dropped 5.3 percent. The CAC 40 in Paris fell 4.4 percent and the DAX in Frankfurt fell 3.4 percent.

The Tokyo benchmark Nikkei 225 stock average fell 3.8 percent, while the S&P/ASX 200 in Sydney shed 2.8 percent. The Hang Seng index in Hong Kong dropped 3.9 percent.

Economic data and company earnings in recent weeks have eroded hopes that a gradual recovery would start to materialize during the second half of the year. If, as seems increasingly likely, a tangible recovery will not come until 2010 at the earliest, Mr. Evans said, “that means corporate earnings will remain extremely soft for quite some time.”

“And that in turn means it’s pretty clear that there is more value to be had in safe havens like bonds than in equities,” he added.

Economic data from Europe added to the dismal atmosphere in the market. The Markit euro zone manufacturing purchasing managers’ index sank in February to a record low of 33.5 from 34.4 in January.

On Monday, the Japan Automobile Dealers Association said in a statement that auto sales in February declined 32.4 percent, the seventh consecutive monthly decline.

Japan last week reported that exports in January declined by nearly half from a year ago, while South Korea on Monday released data for February — the first in the region to issue data for that month — showing a 17 percent plunge in exports.

Data released Friday showed gross domestic product in the United States fell at an annualized rate of 6.2 percent during the fourth quarter of 2008, the steepest decline since the 1982 recession, suggesting a deeper downturn that will in turn further challenge the battered financial system.



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