Bad day on Wall Street today, folks. The S&P 500 closed at the lowest level since April 1997.
The NYT explains:
Analysts said that after fevered speculation last week about bank nationalization, many investors now expect the government to move in that direction, despite statements from the White House supporting a privately held banking system. Stock markets dropped on Friday amid concerns that a broad government takeover could wipe out financial shareholders.
Now, with the government set to begin the “stress tests” on Wednesday, investors want to know which banks will be deemed healthy and which will not, analysts said. Of most pressing concern are big banks including Citigroup, Bank of America, Wells Fargo and JPMorgan Chase, followed by regional chains.
Those stress tests, meant to identify the banks that require government help, seem to be adding stress to the markets.
Testing big U.S. financial firms seems like a good idea. But bank stocks, which were already hit hard before Geithner revealed the plan last week, have only been under renewed pressure as investors have been taking bets on which banks might fail stress tests – and possibly be forced to sell more stock to the government, further diluting shareholders.