Banking levy hangs over S&P financials
US stocks slid in a broad sell-off yesterday as investors pummeled financials on concerns about a potential government levy on banks, while Alcoa’s disappointing results tempered optimism about the economic recovery.
The benchmark S&P 500 broke a six-day streak of gains as banks led the financial sector lower, sending the KBW bank index down almost 2 per cent. Shares of Bank of America dropped 3.4 per cent, while Citigroup shed 3 per cent and JPMorgan declined 2.3 per cent.
President Barack Obama is considering a levy on financial services firms to recoup losses from the Troubled Asset Relief Program as part of the fiscal 2011 budget, according to a senior US official.
The potential fee could raise as much as $120bn to cover taxpayer losses stemming from government bailouts, according to official sources.
Investors feared that a levy might hurt bank profits at a time when the sector was trying to recover from the financial crisis, analysts said.
“Talk of a levy creates even more uncertainty for the market and that’s the reason for the financials to pull back,” said Quincy Krosby, market strategist with Prudential Financial in Newark, New Jersey. “The sooner they can clarify the rumors the better for the market.”
The Dow Jones industrial average dropped 36.73 points, or 0.34 per cent, to 10,627.26. The Standard & Poor’s 500 Index fell 10.76 points, or 0.94 per cent, to 1,136.22. The Nasdaq Composite Index slid 30.10 points, or 1.30 per cent, to 2,282.31.
Shares of Alcoa, a Dow component, fell 11.1 per cent to $15.52, their biggest one-day percentage slide since March after the aluminum company’s weaker-than-expected results.
Investors had hoped Alcoa would kick off the latest quarterly earnings season on a positive note after their bets on a more upbeat economic recovery sent Wall Street to 15-month highs.
News that China’s central bank was tightening monetary conditions in response to increasing concerns about the economy overheating added to the negative tone.
Any potential pullback in Chinese demand will be a major setback for exporters, which include commodity companies like Alcoa. Shares of other big manufacturers fell, with Caterpillar sliding nearly 3 per cent to $62.24 and Newmont Mining falling 3.3 per cent to $48.52.
The S&P materials index declined nearly 2 per cent. Technology was not spared, Apple shares falling 1.1 per cent to $207.72.