Stocks fall as government unveils financial plan
A revamped financial rescue plan unveiled Tuesday by the Obama administration landed with a thud on Wall Street, sending the Dow Jones industrial average down almost 400 points to its lowest level since November.
Financial stocks were hit the hardest as investors vented frustration at the dearth of specifics in a speech by Treasury Secretary Timothy F. Geithner.
Billed as a major policy prescriptive, Geithner’s address gave little more than the broad contours of the plan, many of which already had leaked out in recent days.
That raised not only the specter of a substantial delay in the long-awaited recovery of the banking sector but also doubt about the ability of President Obama’s economic team to deal with the challenges posed by the deteriorating economy and faltering markets.
“What plan?” asked Bert Ely, an Alexandria, Va., banking consultant. “The devil is in the details, and the details are hiding in the bushes or deep underground.”
The Dow, which was down about 70 points before Geithner’s speech, sank about 200 points during the half-hour address.
“He says all the right stuff about protecting the government and not having people get windfall [profits], but he doesn’t explain to us how this is going to be accomplished,” said Sean Mathis, managing director of Mathis & Co. in New York. “That’s why the market reacted so badly to the speech.”
The blue-chip average sank 381.99 points, or 4.6%, to 7,888.88.
The Standard & Poor’s 500 index skidded 42.73 points, or 4.9%, to 827.16, its sharpest one-day fall since a 5.3% tumble Jan. 20, the day Obama was inaugurated. Only nine of the S&P;'s 500 stocks rose Tuesday.
The Nasdaq composite index gave up 4.2%.
Financial stocks got pounded. A closely watched index of bank shares shriveled 14%, though it remained above its low of last week as well as its 14-year low set last month. Bank of America tumbled 19%, Citigroup lost 15%, and Wells Fargo dropped 14%.
Shares of regional banks sustained the worst damage. Alabama’s Regions Financial plunged 30%, while Cleveland-based KeyCorp fizzled 27%.
Underscoring the financial sector’s troubles, shares of insurance giant Principal Financial Group nose-dived 30% on worries that it might have to raise capital to offset securities-related losses.
Declining issues outnumbered advancers by about 5 to 1 on the New York Stock Exchange. Volume was heavy.
Yields on Treasury bonds, which had risen steadily since the start of the year, tumbled as nervous investors once again rushed toward the safety of government securities. The yield on the 10-year Treasury note fell to 2.84% from 3.02% late Monday.
Oil prices slid as the negative reaction to Geithner’s speech translated into increased pessimism about the overall economy. Crude futures fell $2.01 to settle at $37.55 a barrel on the New York Mercantile Exchange.
The dollar jumped against other major currencies, while gold prices rose.
Overseas, key stock indexes fell 2.2% in Britain, 3.5% in Germany, 3.6% in France and 0.3% in Japan.
Times staff writer E. Scott Reckard contributed to this report.