Stocks lower as bank worries continue, home sales fall
NEW YORK -- Stocks fell again Wednesday again as worries about the banking and housing industries piled up.
The market was led by banking stocks that dropped amid ongoing uneasiness about the steps the government will take to help struggling financial companies. The Obama administration is planning to begin "stress tests" on the nation's biggest banks Wednesday to determine how they would fare if the economy worsened.
Banking regulators plan to examine the financial well-being of Citigroup c, Bank of America bac and more than a dozen other institutions that have received money from the government's $700 billion bailout fund. The checkups are designed to help determine whether banks have enough capital to endure any further bumps in the economy during the next two years.
Meanwhile, more bad news about the housing market left some traders too nervous to hang onto stocks they snapped up a day earlier, when the Dow Jones industrials rose 236 points. The National Association of Realtors said sales of existing homes fell 5.3% to an annual rate of 4.49 million last month, from 4.74 million units in December. It was the worst showing since July 1997, and Wall Street had expected sales would rise.
"What we're seeing is a lack of follow-through to yesterday," said Uri Landesman, head of global growth strategies at ING Investment Management. "Everybody is already discounting a horrible year this year. The question is, when are people going to see a turn? They've been burned so badly it's going to be in their interest to be as conservative as possible before it's clear that a turn has come."
Investors are also watching Federal Reserve Chairman Ben Bernanke, who giving a second day of testimony before Congress. Facing tough questions about the government's controversial bank-rescue efforts, Bernanke told the House Financial Services Committee that without these moves, the U.S. recession would have been even deeper. On Tuesday, Bernanke told Congress the recession might end this year, and that regulators aren't planning to nationalize banks — which has been a big fear among investors.
President Barack Obama is expected to call for strong financial sector regulation and oversight to restore trust in the financial markets when he meets with Treasury Secretary Timothy Geithner and lawmakers Wednesday afternoon.
In midday trading, the Dow Jones industrial average fell 123.38, or 1.68%, to 7,227.56.
Broader stock indicators also fell. The Standard & Poor's 500 index fell 12.06, or 1.56%, to 761.08, and the Nasdaq composite index fell 26.02, or 1.80%, to 1,415.81.
Investors showed little reaction to President Obama's speech Tuesday night that touched on the need to create jobs and stabilize the credit system. He said specifics on these and other goals would follow but that billions more may be needed to stabilize the banking system.
Stocks rebounded Tuesday from a Monday sell-off as Federal Reserve Chairman Ben Bernanke told Congress the recession might end this year, and that regulators aren't planning to nationalize banks. Investors were also buying ahead of Obama's speech before a joint session of Congress.
The Dow Jones industrial average rallied 236 points on Tuesday and lost 251 on Monday. Tuesday's move lifted the Dow and the S&P 500 index off their lowest levels since 1997.
In afternoon trading in Europe, stocks rose after the U.S. rally Tuesday. Britain's FTSE 100 rose 1.08%, Germany's DAX index rose 0.38%, and France's CAC-40 rose 0.71%. Earlier, Japan's Nikkei stock average rose 2.65%.