Investors sent stocks lower Monday as anxiety over the growing list of firms affected by investment manager Bernard L. Madoff magnified Wall Street’s concerns about the health of the financial sector.
Stocks traded mixed early in the session on word that President Bush was working on providing short-term government help for the auto industry. The Senate’s rejection last week of a $14-billion bailout for automakers had raised the possibility of a major bankruptcy, an event some analysts say would result in the loss of as many as 3 million U.S. jobs next year.
But as that fear eased somewhat, it gave way to concerns about companies’ exposure to Madoff’s operations. Authorities on Thursday accused the former chairman of the Nasdaq Stock Market of defrauding investment clients out of $50 billion in a sophisticated Ponzi scheme.
The list of firms that had money invested with Madoff grew to include HSBC Holdings, Banco Santander, BNP Paribas, Royal Bank of Scotland Group and hedge fund Man Group.
“The investor psyche is already quite fragile. Scandals like this just add fuel to the fire,” said Alan Gayle, senior investment strategist for RidgeWorth Capital Management.
The Dow Jones industrial average finished down 65.15 points, or 0.8%, to 8,564.53. The Standard & Poor’s 500 index lost 11.16 points, or 1.3%, to 868.57, while the Nasdaq composite index fell 32.38 points, or 2.1%, to 1,508.34.
The Russell 2,000 index of smaller companies fell 15.86 points, or 3.39%, to 452.57.
Declining issues outnumbered advancers by about 3 to 1 on the New York Stock Exchange.
Investors also seemed hesitant to make any major moves ahead of the Federal Reserve’s decision today on interest rates. Some analysts anticipate that members of the policymakers committee will cut the key rate by half a point to 0.5%, while others expect a three-quarter-point reduction to 0.25% -- which would be the lowest key rate in more than half a century.
In addition to a rate cut, investors are anticipating some sort of resolution for the automobile industry this week. Bush reiterated Monday that he remained open to tapping the $700-billion financial bailout fund to help the companies stay afloat.
General Motors and Chrysler are seeking the funding, while Ford Motor has said it has enough cash to survive 2009. GM shares rose 14 cents to $4.08. Ford rose 14 cents to $3.18.
The Madoff scandal only added to investors’ growing fears about the financial sector, already expected to report more losses for the fourth quarter.
JPMorgan Chase lost 7.5%, to $28.63, while Bank of America dropped 5.4%.
Treasury yields edged lower. The benchmark 10-year Treasury note fell to 2.53% from 2.59% late Friday.
The dollar fell against the euro and the British pound but rose against the Japanese yen. Gold prices rose.
Crude futures peaked briefly above $50 early Monday, but then ended down $1.77 at $44.51 a barrel on the New York Mercantile Exchange.
Markets overseas were mixed. Key stock indexes rose 5.2% in Japan and 2% in Hong Kong. Shares fell 0.1% in Britain, 0.2% in Germany and 0.9% in France.