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Daily Blog -02/20/09- 2:47 P.M.


Banks Crumble Under Nationalization Fears

The U.S. stock market continues to sink as financial stocks lead the way lower. Fears that major banks might need to be nationalized fueled the sell-off. Earlier this morning the Dow Jones Industrial Average (DJIA) was on pace for its lowest close since October 1997. The DJIA is down about 140 points but bouncing fast off its worst levels when it was down 216 intraday. Tech stocks were no safe haven today as the NASDAQ slipped to 1417 intraday but the index has bounced back to 1429 only down 0.9%. Meanwhile the S&P 500 index was nearing its November 2008 lows around 740 this morning but again the market is bouncing back. The S&P 500 is only down 0.5% at 774.

Bloomberg reported that Senate Banking Committee Chairman Chris Dodd said that banks may need to be nationalized and it sparked a huge sell-off in financials. The BKX is down 3.7% and the BIX is down more than 8%. Two stocks that have been sinking for weeks under nationalization fears are Bank of America (BAC) and Citigroup (C). Shares of BAC are down 25% to $2.96 a share but have bounced back from new all-time lows of $2.53 intraday. Shares of C are down 19.9% at $2.01 and hit new 18-year lows at $1.61 this morning.

BAC's CEO Ken Lewis came out today and said,

"We see no reason why a bank like ours should be nationalized. Our bank is profitable with strong levels of capital and liquidity. Speculation about nationalization is based on a lack of understanding."

Chart of Bank of America:

Chart of Citigroup:

Gold is naturally trading higher as a "safe haven" play. Gold futures for April have rallied to $1,001 an ounce intraday. The GLD gold ETF is up 2.1% and breaking out over resistance at its July 2008 high of $97.50. The SLV silver ETF is also hitting new multi-month highs with a 2.3% gain to $14.21 a share. The XAU and GOX gold indices are up 3.4% and 3.2% respectively.

Another two stocks weighing heavily on the DJIA are General Motors and General Electric. GM is down 15% and trading under $1.75 but shares are rebounding from a Friday morning low of $1.52 (-24%). GM hit levels not seen since 1938 and the company's market cap has fallen under $1 billion. Meanwhile shares of GE are down more than 8% and have broken under round-number, psychological support at the $10.00 mark with shares currently at $9.22.

Energy stocks are getting hit hard today following another drop in oil futures. The OIX oil index and OSX oil services index are both off 2.3%. Airline stocks are some of the worst performers with a 6% plunge in the XAL index.

A few charts of the major indices:

Chart of the S&P 500:

Chart of the DJIA:




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