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Just one day after investors sent financial stocks on a tear, presumably because they could see the end of the current financial mess, they reversed direction and ran for it.
The Dow Jones industrial average closed at 11,147.44, down 236.77 points, or 2.1 per cent. The broader S&P 500 closed at 1244.69, down 29.01 points, or 2.9 per cent – putting it down 20.4 per cent from its high in October, or firmly in bear market territory.
Although the selloff was widespread, with 90 per cent of the Dow industrials and 84 per cent of the S&P 500 stocks falling, the biggest drubbing was reserved for financials on concerns that, hey, maybe the financial mess will stick around a while longer. The S&P 500 financials index of 88 stocks fell a sharp 5.2 per cent. Bank of America Corp. fell 6.3 per cent and Citigroup Inc. fell 5.5 per cent.
The trigger for the selloff: You could chalk it up to a report from Credit Suisse, which suggested that 40 per cent of the biggest U.S. lenders may have to cut their dividends – but with yields up so high, these cuts look all but factored in to current stock prices. (As well, Ken Lewis, chief executive of Bank of America, reiterated his commitment to keeping the bank's dividend intact in a statement made after markets closed, sending the shares bouncing 4.5 per cent in after hours trading.)
The other bit of dreary news, for some at least, is that Fannie Mae sold $3-billion (U.S.) worth of debt at a hefty premium to the U.S. Treasury rate – a potential sign that the mortgage finance company is creaking under the strain of the imploding housing market. Fannie Mae shares fell 13 per cent.
In Canada, the S&P/TSX composite index followed the U.S. indexes down. It closed at 13,610.84, down 198.93 points or 1.4 per cent. There, nine of the 10 subindexes fell. No even energy came to the rescue, thanks in part to a retreat in oil prices following a rally earlier in the day. Oil fell below $136 a barrel at one point.
Research In Motion Ltd. was the biggest drag on the index, tumbling 4.1 per cent on rumours about the readiness of a new wireless device and excitement over the upcoming launch of the new iPhone. As well, Royal Bank of Canada fell 4 per cent and EnCana Corp. fell 3.2 per cent.
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