In These New Times

U.S. Stocks Fall in Market’s Worst Two-Day Drop Since 2002
By Elizabeth Stanton

Sept. 23 (Bloomberg) — U.S. stocks fell in the market’s worst two-day slump in six years on concern Congress will hold up a $700 billion bank bailout that Federal Reserve Chairman Ben S. Bernanke said is critical to preventing a recession.

General Motors Corp., Dillard’s Inc. and Regions Financial Corp. tumbled more than 7 percent after members of the Senate Banking Committee expressed skepticism about Treasury Secretary Henry Paulson’s plan. General Electric Co., the world’s third- biggest company, retreated 4.6 percent as Merrill Lynch & Co. downgraded the stock on “growing fundamental pressures.” ConocoPhillips and Newmont Mining Co. lost more than 3 percent as oil retreated following a record advance and gold and copper prices decreased.

The Standard & Poor’s 500 Index slid 18.87 points, or 1.6 percent, to 1,188.22, capping a two-day decline of 5.3 percent. The Dow Jones Industrial Average lost 161.52, or 1.5 percent, to 10,854.17, erasing a 128-point rally. The Nasdaq Composite Index declined 25.64, or 1.2 percent, to 2,153.34. Almost three stocks fell for each that gained on the New York Stock Exchange.

“The credit crunch is going to become far more severe than anybody thought two weeks ago,” said Tom Wirth, senior investment officer at Chemung Canal Trust Co. in Elmira, New York, which manages $1.7 billion. “In my opinion this is not understood by the politicians in Washington.”

`Universally Negative’

The S&P 500 swung between gains and losses at least 25 times as Bernanke and Paulson urged swift passage of the bailout measure, while lawmakers expressed objections. Senator Sherrod Brown, a Democrat from Ohio, said his constituents hold a “universally negative” opinion toward the proposal, while Senator Jim Bunning, a Kentucky Republican, said the plan would “take Wall Street’s pain and spread it to the taxpayers.”

The S&P 500 Banks Index retreated 3.1 percent. The index plunged 12 percent yesterday, the most since the gauge was created in 1989. Oppenheimer & Co. analyst Meredith Whitney lowered her earnings estimates for U.S. banks, predicting U.S. home prices may fall an additional 25 percent and saying the government bailout holds “little hope of improving core fundamentals over the near and medium term.

GE lost $1.20 to $24.95. The company was cut to “neutral” from “buy” at Merrill. The company’s GE Capital unit is facing “growing fundamental pressures,” Merrill analysts wrote in a report. They lowered their 2009 and 2010 earnings per share forecasts and their share-price projection.

Zions Bancorporation fell 14 percent to $40.54 for the biggest drop in the S&P 500. Citigroup downgraded the Salt Lake City-based lender with operations in 10 Western states to “hold” from “buy.”

The bailout under consideration is “helpful, but it’s not going to prevent a recession if we’re in one, or cause people to pay back loans that they couldn’t otherwise pay back,” David King, a money manager at Putnam Investments in Boston, said on Bloomberg Television. Putnam manages $163 billion.

To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net.