Stocks Tumble on Fresh Bank Worries

Major Indexes Down Close to 2 Percent; Will September End Market's Six-Month Rally?

(AP)  The stock market's six-month rally finally gave way Tuesday, succumbing to resurgent worries about the fragility of the banking industry and the economy as a whole.

A mix of rumors and growing concerns that more banks will fail pummeled the financial industry, which had posted some of the biggest gains since the stock market began its huge advance in March. Investors saw a batch of economic reports that just weren't good enough as a parallel reason to sell.

All the major indexes fell about 2 percent. The Dow Jones industrials fell 186 points. The Nasdaq lost 40 and the S&P 500 was down 23.

Meanwhile, bond prices edged higher as investors sought the safety of government debt. The price of oil tumbled as the dollar strengthened and amid concerns that the economy isn't strong enough to support higher demand for energy.

Analysts said there were other forces at work in the market, including lingering concerns about the Chinese economy, whose problems would affect the rest of the world. And investors, cognizant of the market's tendency to sag in September, also seized upon that to justify pulling money out of stocks.

Banks and insurance companies were the most notable losers, but they also had been pumped up the most in a rally that lifted the market more than 50 percent since hitting 12-year lows in March.

Traders said rumors were making the rounds in the market. But with the government reporting last week that 400 banks were in trouble during the second quarter, investors' anxiety about the health of the financial industry is heightened.

Anton Schutz, portfolio manager of Burnham Financial Industries Fund and Burnham Financial Services Fund, said talk of a possible major bank failure rattled the market.

"Nothing has been substantiated," he said. "This market is easily spooked after we've had such a run," he said.

The plunge in stocks came even as the Institute for Supply Management reported that U.S. manufacturing grew in August for the first time since January 2008. The market also shrugged off another positive economic report, the sixth straight monthly increase in pending home sales.

Investors have long since factored in an economic recovery into stock prices, but analysts, worried that investors have been too optimistic, have been anticipating a downward turn. Trading has been choppy recently as investors also questioned whether their bets on the economy have been warranted.

"The market's priced all of this in, and a lot more, quite frankly," said Jeff Buetow, managing partner at Innealta Portfolio Advisors. "I just don't see the growth out there."

On the surface, the day's economic numbers were good. But a deeper look at the data gave some cause for concern.

Analysts said both the manufacturing and housing reports got a boost from government stimulus efforts, including the Cash for Clunkers program that has since expired, which means the recovery in those industries may not continue at the same pace.

"In both cases it seems headlines overstate details by a touch," said Tom di Galoma, head of U.S. rates trading at Guggenheim Capital Markets LLC. "People reviewed the numbers and said this type of demand is just not sustainable."

Investors are also hesitant to buy stocks ahead of Friday's employment numbers, which could reveal more bad news about the job market, one of the worst remaining problem areas in the U.S. economy.

Nearly five stocks fell for every one that rose on the New York Stock Exchange, where volume came to 1.1 billion shares compared with a light 675.8 million shares traded at the same time Monday. Volume has been light as some traders break away for vacation before Labor Day. That can leave the market vulnerable to big swings.

Bond prices turned mostly higher after stocks began to fall and investors went in search of safer assets. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.38 percent from 3.40 percent late Monday.

Light, sweet crude for October delivery tumbled $1.82 to $68.14 a barrel on the New York Mercantile Exchange, bringing down shares of energy companies with it. Gold prices fell.

Although the market pulled back in recent days, stocks managed to put in their best August since 2000. September, however, is historically the worst month for stocks.

"It's a self-fulfilling prophecy," said Steve Stahler, president of The Stahler Group in Baton Rouge, La., of investors entering the month knowing it's typically weak.

Stahler added that there are no longer indicators on the horizon that can continue to propel the market forward at such a dizzying pace.

"We've had a heck of a run," Stahler said. "When has that type of gain been sustainable? It never has."

The reaction to the day's economic reports signaled that many traders are more concerned about how much stocks have rallied.

The Institute for Supply Management said Tuesday that its index of manufacturing activity rose to 52.9 in August, up from 48.9 in July and well above the reading of 50.5 analysts had been expecting. A reading above 50 signifies growth in the industry - something that hasn't happened since January 2008.

Meanwhile, the National Association of Realtors said its index of pending U.S. home sales rose 3.2 percent in July to 97.6, more than the 96.5 forecast by analysts. It was the reading's highest level in more than two years, helped by a surge of first-time buyers taking advantage of a tax credit that expires this fall.

It was the sixth straight increase and 12 percent above the same month last year.

Overseas, Japan's Nikkei stock average rose 0.4 percent. Britain's FTSE 100 dropped 1.8 percent, while Germany's DAX index tumbled 2.5 percent and France's CAC-40 fell 1.9 percent.

China's Shanghai Composite Index rose 0.6 percent after a 6.7 percent plunge on Monday that sent a wave of selling around the globe.

[rightbehind]

What happen? Wallstreet run out of US jobs to export?

[Resin-Smoker]

Doing the 8 things would correct most of our problems or would of helped us avoid our current situation:

1) Keep jobs local by mandating that all companies doing business within the United States produce > 70% of their products here.

2) Outright ban all special interest groups & lobyests as they don't serve the public interest. (Only corporate / foreign clients with deep pockets)

3) Term limits for congressmen... It's one thing to have a professional goverment but it's another all together when ones sole purpose is to serve their own interests.

4) Remove the tax loop holes for the > 5% and corporations. (A flat tax would be a wonderfull thing)

5) Require that all stocks and securities traided within the Unitied States be open to direct IRS and shareholder scrutiny.

6) Don't ever allow a corporation to dictate policy or donate directly or indirectly towards those seeking public office.

7) Corperate C.E.O. should be held directly accountable for the performance or failure of their companies. Walking away with a multi-million dollar sendoff while everyone else is out job hunting is total B/S and shameful.

8) Force insurers to pay victums of a natural disaster, rather then being able to declare bankruptcy to avoid it.

9) Level cost of health care... It's pretty embarising to thing that the United States can't provide the same level of health care at any where near the cost as Canada!

[pollroller1]

I'm an old man and I have seen these markets rise and fall lots of times in my lifetime.
You know what's funny. When the market is going up, everybody thinks it will go up for ever. When it goes down, everybody thinks it will never come back.

[vuenbelvue]

Doesn't the article mean to say the top Wall Street firms ran the possible outcomes on their super computer software programs and told the top 1% of their clients to sell because hidden in the processes of the market is the information on the banking industry? The average Joe and Jane are being told to buy stocks the big accounts sold last week.

[searingtruth]

Of course stocks are tumbling. As I've been warning, nothing has fundamentally changed in our economy. All that happened was that Obama gave trillions of dollars to billionaires, and they're busy shipping it out of America as fast as possible.

I think it's time that the great American people realize that the Democrats are not going to save us, or substantially change any of the heinous Bush Administrations policies.

Since Democrats and non-partisans such as myself graciously awarded them the House, Senate, and Presidency I have been aghast as I watched the Democrats act, and vote, almost identically to the Republicans. From illegal rendition, to secret prisons and torture, to giving away trillions of dollars to billionaires, to endless war, to denying the people universal health care, there is now almost no tangible difference between the Republicans and Democrats.

So today, after 25 years as a registered non-partisan voter, I changed my affiliation to The Green Party. It is time that the American people take a firm stand against all those who have turned this great nation into just another third world banana republic, and after much research and soul searching I believe The Green Party is our best hope.

So if you think the Republicans and Democrats are doing a good job, and you like the results of their rule, then by all means stay with them.

If, on the other hand, you feel as betrayed as I do then abandon them, and at least try something else. Otherwise, I promise you, nothing is ever going to change.
ST


"The Republican and Democratic parties have delivered us into the hands of darkness."
SearingTruth

A Future of the Brave

[Ichabod09]

Searing,

do you realize how pompous and bogus it is to quote oneself? Get help fast!

[G-I_Jesus]

Roller Coaster Money Ride

The system is flawed and corrupt! As long as it is Wall street that makes all the money, ordinary investors will suffer.

[donnerwetter]

The New York Stock Market of today has nothing to do with honest investing, it is pure and simple the biggest gambling casion in America. Like so many other good things this country once had, this too was destroyed by greed, lies and corruption. Lets see, there was the British Empire and than trhe American Empire and now we will have the Chinese Empire.

[John_Merritt]

I am seriously, do they even need a reason to drive this market one way or another? The way the markets move defies logic most of the time. Fortunately I was in early March and saw a nice gain in my 401k. Still a little risk averse and had nearly 50% in bonds and MM's until July when I started breathing easier.

It is almost like they have created their own models and jockeying for put-call posiitons. Makes it tough for the small guy to invest and darn near gives you a whipsaw concussion from your head bouncing back and forth with the swings.

[enzoc45]

looks like HIS MAJESTY is all over these CBS news,,,

[spaceatoms]

Your now seeing why Bush was clearly a much more seasoned President than Obama; I like Obama, but he is clearly out of his league trying to build trust through talk and only time will tell if he can lead this country out of the blues. Some of the worst business moves in history are the economic bailouts of companies like AIG who give out the compensation packages. Its great to see people like Waxman go on the offensive. I own my own business and don't expect a bailout, if I lose the game, then I lose the game, I have been taught this since a kid, but the games going on now are way over my head as their is no basis underlying the decisions like bailout out a private company with tax dollars and then they take a 100 million dollar compensation package. Using tax dollars and private industry in the same sentence is not good because its an inclination of socialism.

[rplat]

I watched "Idiocracy" the other night and the resemblence to this poor sick country was frightening

[STBY21]

Doesn't it make you feel smarter though?