US shares sagged Friday to their lowest in some cases since last November as investors struggled to shake off fears about banks and the economy.
Four more small US banks were shut over the weekend, taking to 13 the number closed in the first seven weeks of the year, more than half the 25 shut in all of 2008 (but non as big as IndyBank or the huge Washington Mutual).
With seven so far this month, February is already the worst month for bank failures since 1993.
The fears were fuelled by the less than stellar debut of the Obama economic team, and concerns also that the Obama administration will fluff another chance on Wednesday when it reveals plans to stem home foreclosures.
On top of this, news of big losses in the Swiss, Irish and UK banking sectors during the week (Ireland is basically broke and its banks are in the process of being part nationalised by the State).
Initial enthusiasm over foreclosure plans evaporated on Friday after the White House cautioned against unreasonable expectations and doubts lingered about how banks will cleanse their books of toxic assets.
President Obama will sign the $US billion economic stimulus plan in Denver on Tuesday night (Australian time).
All this news (and confirmation that led by Germany, the European economy is now contracting faster than thought) left investors unhappy, so they sold.
The Dow ended down 82.35 points, or 1.04%, at 7,850.41, its lowest close since the November 20 bear market closing low.
The Standard & Poor’s 500 Index fell 8.35 points, or 1%, to 826.84 (still well above its November low). Nasdaq eased 7.35 points to 1,534.36 and is also still clear of its low.
The S&P 500 is up about 10% from the bear lows hit around November 20, but had started 2009 up around 20%, so it’s been a slow retreat since early last month.
Friday’s fall left the major indexes lower over the week, with the bank rescue plan and agreement on the economic stimulus package doing little to reassure investors.
The credibility question now dominates the thinking of markets, investors, homeowners and others. In fact the Obama Administration’s credibility is at stake this week.
The S&P 500 fell 4.8% its worst weekly fall since November), the Dow fell 5.2%, while the Nasdaq ended off 3.6%.
In Europe, the Dow Jones Stoxx 600 Index dropped 3.7% over the week.
It had been up for two weeks in a row on optimism that government economic stimulus packages, a financial-rescue plan from Obama’s administration and interest-rate cuts will help lift the globe’s major economies out of the rut, or at least slow the slide.
Eurozone gross domestic product fell 1.5% in the fourth quarter, led by a dramatic deterioration in Germany. France, Italy and Spain were also weak, as was struggling Ireland.
German gross domestic produce contracted by 2.1% in the final three months of 2008 – the worst quarterly performance since the country was reunified in 1990.
That was significantly faster than the UK, where the fourth quarter contraction was in line with the eurozone average.
It was the eurozone’s worst fall on record. This week we learn about the extent of the 4th quarter slide in Japan: it could be as much as 3% in the quarter alone.
National indexes fell in 15 of the 18 western European markets. Germany’s Dax dropped 5% as figures showed the country is sliding faster than the other 14 economies in the eurozone.
France’s CAC 40 fell 4% after a series of strikes and other protests.
London’s FTSE 100 lost 2.4% over the week after shedding 0.3% on Friday because of weaker bank shares, especially Lloyds.
Lloyds Banking Group said its HBOS unit had a pretax loss of 8.5 billion pounds ($US18.7 billion) for 2008, driven by 7 billion pounds of dud loans, raising fears that the already partly nationalized bank will need further state help.
In Asia, the MSCI Asia Pacific Index slipped 2.0% last week after rising 3.9% in the previous two weeks. The index has lost 8.7% so far this year.
Hong Kong’s Hang Seng Index dropped 2.8%, China’s Shanghai Composite Index lost 9.6% and Tokyo’s Nikkei Average rose 74.04, or 1% at the close of trading in Tokyo. For the week, the Nikkei retreated 3.7%.
The US market will be closed on Monday for the Presidents Day holiday.
US consumer confidence in February fell to its lowest level in three months as sentiment grew increasingly gloomy over an economic downturn that most expected to last more than five years.
Wal-Mart Stores shares fell 3.3% to $US46.53, making it the biggest faller in the Dow.
Wal-Mart reports 4th quarter figures tomorrow night. US investors have gone off consumer discretionary stocks like Wal-Mart in recent weeks as they struggle to believe in the upturn story later this year.
Building products group, Home Depot dropped 3.5% to $US21.22.
