Wall Street: Dow Jones and S&P Fall to Lowest Levels in 12 Years

On Wall Street on Friday, the Dow Jones and S&P index plummeted to their lowest levels in 12 years, following news that the U.S. government would take a significant ownership stake in Citigroup and that the U.S. economy recorded its largest decline in the last quarter since 1982.

The Dow Jones index fell by 119 points or 1.66 percent, to 7,062 points, the lowest level since May 1997. After losing 2.36 percent yesterday, the S&P 500 index dropped to its lowest level since December 1996 – 735 points. The Nasdaq index, on the other hand, fell by 0.98 percent, to 1,377 points.

Citigroup’s stock was the biggest loser yesterday, with a price drop of 39 percent, after the U.S. Treasury announced that it would convert its preferred shares worth $25 billion into common stock, which could reduce the stake of other shareholders to 74 percent.

"Investors fear that Citi is not the last bank in which the government will take a significant stake, and when the state becomes the owner of 30 to 40 percent of the stake, it can be considered a form of nationalization," says William Lefkowitz, a strategist at the brokerage firm vFinance Investments. As a result, the entire banking sector came under pressure, and the KBW index for that sector fell by 8.7 percent yesterday.

The pressure continued for the second consecutive day on pharmaceutical companies due to the government’s budget proposal, which includes cuts to healthcare spending. Consequently, Merck’s stock price fell by more than 7 percent, and Johnson & Johnson’s by 4.7 percent. General Electric’s stock price also sharply dropped by 6.5 percent after the corporate giant announced a 68 percent dividend cut to save $9 billion, as its financial department is facing difficulties, as is the entire financial sector.

The market was also negatively impacted by the data showing that in the last quarter of last year, the U.S. gross domestic product fell by 6.2 percent, marking its largest decline since 1982, when the U.S. was in a recession that lasted 16 months.

"These data indicate a very depressing situation in the economy at the end of last year and foreshadow poor economic performance in the first part of this year," says Bill Cheney, an economist at John Hancock Financial. Throughout last week, the Dow Jones index lost 4, the S&P 500 4.5, and the Nasdaq 4.4 percent. In February, the Dow Jones index fell by 11.7, and the S&P 11 percent, marking their largest decline in February recorded since the Great Depression of 1933. Since the beginning of the year, the S&P index has fallen by 18.6 percent, marking its largest decline at the start of the year ever recorded.

European stock prices also sharply fell on Friday. The London FTSE index lost 2.2 percent, dropping to 3,830 points, while the DAX index of the Frankfurt Stock Exchange plummeted by 2.51 percent, to 3,843 points. (Hina)