US equities once again fell sharply on Wednesday, wiping out a late-Tuesday rally that many had hoped would represent a bottom to August’s steep declines.
Financials continued to lead the move lower, dropping 7.1 per cent as a sector by the close. Citigroup fell 10.5 per cent to $28.49, and Bank of America fell 6.8 per cent to $6.77.
The major indices ended the session at the day’s lows, with S&P 500 index falling 4.4 per cent to 1,120.75. The Dow Jones Industrial Average fell 4.6 per cent to 10,719.48, and the Nasdaq Composite index was off 4.1 per cent to 2,381.05.
The chief executive of Bank of America, Brian Moynihan, sought to allay fears. On Wednesday he said the bank would seek to pay a dividend as soon as possible, and said it would not seek new equity capital.
But the two largest US financial institutions, seen as highly sensitive to a US economic slowdown, only endured further volatility. Wednesday’s losses wiped out the brief rally in the shares on Tuesday, bringing them back near their lows seen after a 20 per cent correction on Monday.
Leading financial declines on Wednesday were regional banks. Regions Financial fell 11.5 per cent to $4.23, and SunTrust slipped 11.5 per cent to $5.80. Wells Fargo, seen as one of the better-capitalised banks, still fell 7.7 per cent, to $22.88.
Analysts at RBC Capital Markets recommended that investors should keep buying bank stocks. “It is important to remember that bank fundamentals are strong and we believe they are getting stronger,” they wrote.
However, they also warned that regulatory uncertainty was weighing on the stocks. “The Federal Reserve needs to provide the [systemically important financial institution] buffers and a timetable to reach them,” they wrote.
The troubles of large European banks weighed as well. France’s credit rating, much as the US’s was earlier this week, is feared to be vulnerable as European countries are all called to fund bail-outs to “peripheral” economies such as Greece.
Glenn Schorr, analyst at Nomura, said: “Despite the low valuations, we believe macro concerns will probably keep buyers on the sidelines in the near term”.
There were gains in the sector, however, unlike in previous sessions. Capital One, the consumer lender and credit card group, agreed to acquire the US card businesses of HSBC for $30bn, which follows its earlier $9bn deal to buy ING’s US deposit unit. It is now among the five largest consumer depositaries in the US. The shares rose 0.7 per cent to $41.05.
“This is a strong acquisition for Capital One and complements the ING acquisition,” said analysts at Citigroup.
AvalonBay Communications, the property management group, was up 0.1 per cent to $125.67, after it was named as a possible buyer of rival Archstone, still owned by the bankrupt Lehman Brothers estate.
The market had initially slipped to new lows on Tuesday after the Federal Reserve announced it would hold rates near zero until 2013, but did not extend any additional liquidity programmes.
After the S&P 500 dropped to just above 1,100, many traders stepped in to close shorts, believing that the Fed’s promise of liquidity could be a catalyst for gains. But the market quickly resumed its initial move at Wednesday’s open.
“The Fed did not commit to a third round [of quantitative easing] yesterday. Some traders seeking a bottom may have inferred they were likely to do so, but they didn’t do that,” said Clark Yingst, chief market strategist at Joseph Gunnar.
Mr Yingst said that energy groups and other commodity-linked companies would benefit the most if investors believed “QE3” of some form was imminent. “Hard assets will be what people are seeking if there is ultimately going to be a round three of easing,” he said.
ExxonMobil, the crude oil giant, was down 4.4 per cent at $68.03 on Wednesday, and Freeport-McMoRan, the copper miner, was down 3.3 per cent at $43.55.
Materials groups CF Industries, the fertiliser producer, and Newmont Mining, the gold producer, were among the market’s most resilient performers, as the sector outperformed, down 3.3 per cent. CF’s shares were off by 0.3 per cent at $149.59 and Newmont added 0.7 per cent to $55.81.
Retailer Macy’s succumbed to the sell-off, dropping 3.6 per cent to $24.52, despite the department store chain raising its full-year earnings forecast from $2.45 to as much as $2.65 a share.
Polo Ralph Lauren, the apparel designer, added 4.5 per cent to $125.28 after it topped analyst expectations by earning $1.90 for the quarter, versus forecasts of $1.47.
Walt Disney fell 9.1 per cent to $31.54 as the entertainment and media group missed forecasts for its revenues this quarter. Sales totalled $1.62bn, versus $1.83bn that had been forecast.
Analysts at Nomura lowered their price target from $45 to $42 a share. “The stock is likely to be range-bound unless the macro outlook brightens or earnings begin to beat expectations again,” they said.
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