The TSX/S&P Composite Index, Canada’s main stock index fell broadly on Friday to its lowest closing in 3 months. The heavily weighted energy sector declined on falling oil prices and the financial sector declined on worries over the U.S. banking sector.
The financial sector fell 5% as it was swept up by fears that some major U.S. banks could be nationalized. Investors were scared because that would pretty much wipe out any value for equity investors in those banking stocks (just like AIG when it was effectively nationalized).
The energy sector declined by 5% as oil declined by 1.37% a barrel, hit by persistent concerns about the worsening global economic outlook. The S&P/TSX composite index fell 2.8% on the day and 8.4% on the week, its biggest weekly loss since early December.
In the U.S., stocks also dropped on Friday, with the Dow industrials ending at a 61/2-year low, on fears the government may be forced to nationalize some big banks. Uncertainty about how Washington will rescue banks persisted even as the White House issued its most direct statement yet on banks, saying it supported a privately held banking system. The S&P 500 had plunged close to a 12-year low before the White House statement and stocks pared some of their initial losses.
The Dow Jones industrial average fell by 1.34%, the Standard & Poor’s 500 Index fell by 1.14% and the Nasdaq Composite Index fell by 0.11%. For the week, the Dow fell 6.2%, the S&P 500 fell 6.9% and the Nasdaq fell 6.1%.
Investors view the stabilization of the banking sector as crucial for economy recovery. On Friday, Bank of America closed at $3.79 (after hitting $2.50 earlier in the day), and was the most heavily traded stock on the New York Stock Exchange. Citigroup ended at $1.95, the first time since January 1991 as it closed below $2.
White House spokesman Robert Gibbs told a news conference, “This administration continues to strongly believe that a privately held banking system is the correct way to go, ensuring they are regulated sufficiently by this government.” The White House statement followed comments by Senate Banking Committee Chairman Christopher Dodd, who told Bloomberg news in an interview that a nationalization of some banks could be needed “at least for a short time. CNBC television reported the U.S. Treasury department will provide some details on the Obama administration’s bank rescue plan this week, helping financial shares cut losses.
This morning, North American markets appear to be headed up on a report Citigroup is in talks for the U.S. government to boost its stake in the bank (potentially converting their preferred shares into common shares). U.S. stock futures pointed to a higher open on improved confidence in financials and higher oil prices.
Investors will also be watching a summit at the White House, where President Barack Obama is bringing together advisers to discuss how to curb the growing federal deficit. Obama is preparing to cut the federal deficit by half within four years (by the next election).
Regards,
Wilfred Vos Bcs, FMA, CIM, CFP, FCSI, DMS, CBV, MBA, CFA
SVP & Partner
