The dawn of the Obama presidency could not shake Wall Street from its dejection over the banking industry's growing problems.
After hearing the new president's inaugural address Tuesday, investors continued selling, sending the major indexes down more than 2%. Traders on the floor of the New York Stock Exchange paused at times to watch the inauguration ceremony and Obama's remarks, but the transition of power didn't erase investors' concerns about the struggling economy. Trading volume fell during the ceremony.
Obama said the economic recovery would be difficult and that the nation must chose "hope over fear, unity of purpose over conflict and discord" to overcome the worst economic crisis since the Great Depression.
Investors are expecting Washington will be a central part of the economic recovery. But the first few minutes of Obama's term did little to ease their concerns.
"At this stage, markets in general and bank investors specifically are really looking to government as the way out," said Jack Ablin, chief investment officer at Harris Private Bank. "Certainly, of just about all of inaugurations that I can recall today's event probably has the not only the symbolic importance but really tangible importance to the stock market."
Investors already nervous about the state of U.S. banking were rattled by the Royal Bank of Scotland's forecast that its losses for 2008 could top $41.3 billion, the biggest ever for a British corporation. The British government injected more money into the struggling bank Monday. The government also announced another round of bailouts for the country's banks.
The moves in Britain are designed to insure banks against further losses and are similar to steps the U.S. government has made to protect Citigroup and Bank of America. Both companies on Friday reported multibillion dollar fourth-quarter losses. Citigroup also said it planned to split its operations in two in an effort to return to profitability.
Investors were uneasily awaiting the bulk of companies earnings reports to see how badly industries beyond banking are hurting.
"Today's market is under pressure with fourth-quarter earnings season (increasing this week) and it may not have been effectively priced into the market yet," said Arthur Hogan, chief market analyst at Jefferies & Co.
State Street, which had been performing better than most financial services companies, reported a 71% drop in fourth-quarter profit as it was forced to billions of dollars in write-downs on its commercial paper program and investment portfolio. The bank also said it expects 2009 operating earnings to be flat with 2008, below the company's long-term goal of 10% to 15% growth. State Street plunged $17.18, or 47%, to $19.16.
In midafternoon trading, the Dow Jones industrial average fell 213.93, or 2.58%, to 8,067.29, its lowest level since Nov. 21. The blue chips closed Nov. 20 at their lowest point in more than five years.
During much of Obama's address, the average was down about 150 points. The Dow generally declines on Inauguration Day. Traders hadn't appeared so focused on TV screens since Sept. 29, when the House initially voted against the banking bailout package and the Dow tumbled 777 points.
Broader stock indicators also declined Tuesday. The Standard & Poor's 500 index fell 28.26, or 3.32%, to 821.86, and the Nasdaq composite index fell 60.51, or 3.96%, to 1,468.82.