U.S. Stocks Fall, Sending Market to Its Lowest Close Since 1997

By Lynn Thomasson

Feb. 23 (Bloomberg) -- U.S. stocks fell, sending the Standard & Poor’s 500 Index to a 12-year low, as concern that the deepening recession will erode earnings offset the government’s pledge to give more capital to banks.

Hewlett-Packard Co. and Intel Corp. slid at least 5.4 percent as Morgan Stanley said technology shares are the most vulnerable among economically sensitive industries. U.S. Steel Corp. helped lead a tumble in steelmakers after UBS AG said the group has raised output too quickly. Bank of America Corp. rose 3.2 percent and Citigroup Inc. climbed 9.7 percent as concern eased that the U.S. government will seize control of the lenders.

The S&P 500 lost 3.5 percent to 743.33, its lowest close since April 1997. The six-day losing streak in the U.S. stock benchmark ranks as its longest since October. The Dow Jones Industrial Average tumbled 250.89 points, or 3.4 percent, to 7,114.78, its lowest since May 1997. The Russell 2000 Index lost 4 percent.

“Many investors simply can’t contemplate any more stock market risk in their portfolios,” said Fritz Meyer, the Denver- based senior market strategist for Invesco Aim, which oversees $357 billion. “Sentiment in the market is very weak and negative.”

Bank of America and Citigroup, each with slides exceeding 68 percent this year, have dragged the S&P 500 to an 18 percent decline in 2009, the worst start to a year on record. The losses came as President Barack Obama and Treasury Secretary Timothy Geithner failed to assuage investor concerns with an $787 billion economic stimulus plan comprised of tax breaks and government spending.

Stress Tests

Financial shares led the market higher at the open, rising as much as 4.6 percent collectively, after U.S. regulators said they will begin examining which banks have enough capital to survive a deeper recession. Banks that need more funds after so- called stress tests and cannot raise the money from private investors will be able to tap taxpayer funds.

Losses of at least 11 percent in shares of Nucor Corp., U.S. Steel Corp. and AK Steel Holding Corp. pushed a group of raw- materials producers in the S&P 500 to a 6.2 percent tumble, the most among 10 industries.

Steelmakers need to limit supply to support a “sustained recovery,” said UBS analyst Andrew Snowdowne in a research report. He cut his rating on ArcelorMittal, the world’s biggest steelmaker, to “neutral” from “buy,” while SSAB Svenskt Staal AB, the largest supplier of high-tensile steel, was reduced to “sell” from “neutral.”

Morgan Stanley strategist Jason Todd advised clients to remain “underweight” technology and raw-materials companies as the global economy continues to deteriorate.

‘Sell the Rally’

“Sell the recent rally,” Todd wrote. “Tech is a momentum sector where generally valuations alone are not enough to drive outperformance if earnings momentum is negative and valuations are just ‘fair.’”

To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.