NEW YORK — The dawn of the Obama presidency could not shake the stock market from its dejection over the rapidly deteriorating state of the banking industry.
Financial stocks, many of them falling by double-digit percentages, led a huge drop on Wall Street on Tuesday that left the major indexes down more than 4 percent and the Dow Jones industrials down 332 points. Although traders on the floor of the New York Stock Exchange paused to watch the inauguration ceremony and President Barack Obama’s remarks, the transition of power didn’t erase investors’ intensifying concerns about struggling banks and their impact on the overall economy.
The market’s angst, which began with multibillion-dollar losses reported last week by Bank of America and Citigroup, intensified after the Royal Bank of Scotland’s forecast that its losses for 2008 could top $41.3 billion.
The collapse in bank stocks was swift: State Street plunged 59 percent, Citigroup fell 20 percent, and BofA lost 29 percent. RBS fell 69 percent in New York trading.
“The reason we’re having a panic drop is the fact that Europe is catching our cold, and we could have deeper and deeper problems that could require more and more money. And eventually, the government is going to have to stop spending,” said Keith Springer, president of Capital Financial Advisory Services. “It’s a pretty dangerous situation to be in.”
The shrinking value of bank stocks means the financial industry accounts for less than 10 percent of the Standard & Poor’s 500 index for the first time since 1992. At the end of 2006, banks made up 22 percent of the stock-market benchmark.
The Dow Jones industrial average fell 332.13, or 4.01 percent, to 7,949.09, its lowest close since Nov. 20, when the blue chips ended at 7,552.29 — their lowest point in more than five years. It was also the blue chips’ biggest drop since Dec. 1.
Broader stock indicators also fell sharply Tuesday. The Standard & Poor’s 500 index fell 44.90, or 5.28 percent, to 805.22, and the Nasdaq composite index fell 88.47, or 5.78 percent, to 1,440.86.
Richard Cripps, chief market strategist for Stifel Nicolaus, said the market’s decline was interrupted by Obama’s inauguration speech but that the markets then continued to trade on the problems in the financial sector.
“There’s just tremendous fear and uncertainty in the banking sector,” Cripps said. “Even those closest to the issue, like executives and analysts, there’s a feeling of tremendous uncertainty. They’re not giving any positive guidance because they just don’t know. Lacking that (certainty), we’re left to our worst fears, and that’s what you’re looking at with bank stocks.”
