- The Washington Times - Thursday, February 26, 2009


Wall Street turned sour Thursday, with health-care stocks leading the markets down because of President Obama’s proposed cuts to Medicare insurance companies in his $3.55 trillion budget. Most bank stocks rose.

At the close, the Dow Jones Industrial Average sank 88.81, or 1.22 percent, to 7,182.08, again dropping below the 2002 bear-market lows. The tech-heavy Nasdaq tumbled 33.96, or 2.38 percent, to 1,391.47. The broader Standard & Poor’s 500 slid 12.07, or 1.58 percent, to 752.83.

After the close, Dell Inc., the world’s second-largest computer maker, reported that its profit for its fiscal fourth quarter ending in January fell to $351 million, or 18 cents a share, from $679 million, or 31 cents a share, during the similar three-month period a year earlier — a 48 percent loss. The company said it expected “uncertain and challenging times ahead.”

The markets opened higher on optimism the fiscal 2010 Obama budget would have another $250 billion available to help heavily indebted banks in 2009. But they gave up their gains when the Medicare cuts surfaced and when it dawned on financial institutions that the additional money earmarked for bank bailouts only is a contingency, not funding.

Bank stocks gained following Treasury Department assurances that heavily indebted major banks — those with assets of more than $100 billion — would be able to receive government money under more favorable terms than they had expected. That money would come from the second half of the $700 bailout authorized by Congress last year.

Much of the buying was by investors who had sold bank stocks short on the expectation that their value would drop, Paul J. Miller, an analyst and bank expert at Friedman, Billings, Ramsey Group Inc., of Arlington told The Washington Times.

Investors, he said, “are covering their short sales. It’s a market psychology issue. The banks can get money at favorable prices from the government” because the Treasury Department has set a floor on the value of bank shares that is lower than their current prices.

Shares of Bank of America rose 3.6 percent; those of Wells Fargo and JP Morgan Chase climbed more than 6 percent.

At the same time, investors sold shares of health insurance companies. Shares of Aetna Inc. plummeted more than 11 percent, those of Unitedhealth Group plunged more than 12 percent and those of Wellpoint Inc. dropped more than 9 percent.

In further bad news for the job market, JPMorgan Chase & Co. said it plans to shed 14,000 jobs as part of its absorption of Washington Mutual bank, which it bought last year, up from the 9,200 it announced in December.

The markets ignored government reports saying the number of initial jobless claims rose to 667,000 for the week ended Saturday. At the same time, the Labor Department reported an unexpected increase to 5.1 million of those Americans who continue to receive unemployment benefits, a record going back to 1967.

It marked the fifth consecutive week of such record highs.

Those signing up for benefits for the first time exceeded the upwardly revised figure of 631,000 from the previous week and, CNNMoney.com said, were far more than the 625,000 analysts at Briefing.com had expected. It’s the highest level of initial claims since October 1982, a recession year.

In addition, orders for durable goods such as appliances and other items that can last more than three years fell by a surprising 5.2 percent in January as demand dropped nationwide and globally, the Commerce Department reported.

It marked the sixth successive month in which durable goods orders have fallen, the worst such showing since 1992, when the fall-off lasted for four months. Analysts had expected a drop of only 2.5 percent. The figures for December showed a 4.6 percent decline, much weaker than the 3 percent originally estimated.

The weaknesses in jobs and factory orders reflected a worsening recession, one seemingly without letup, as the Obama administration has tried to turn it around with a $787 billion economic recovery package that was estimated to save or create 3.5 million jobs.

In the corporate world, General Motors Corp. said it went through $6.2 billion during the last three months of 2008 and posted a loss of $30.9 billion for the full year. It has received $13.4 billion in federal loans since Dec. 31 and has asked for another $30 billion to keep it out of Chapter 11 bankruptcy.

The news barely comes as a surprise since the entire auto industry, both at home and abroad, is sustaining tremendous losses in the face of the worst recession in more than 70 years. Tens of thousands of workers have been dismissed or will be laid off because of it.

“2008 was an extremely difficult year for the U.S. and global auto markets, especially the second half,” Chairman and CEO Rick Wagoner said in a statement. “These conditions created a very challenging environment for GM and other automakers and led us to take further aggressive and difficult measures to restructure our business.”

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