Sam Collins

Time for Investors to Panic?

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Investors' nervousness over China's moves to tighten credit resulted in a dip in stocks on Wednesday. Then yesterday, President Obama signaled that he felt the need to curb the size of banks and move back to a division between commercial banks and investment firms that existed under the Glass-Steagall Act.

The Wall Street Journal quoted one stock trader at Cowen & Co. as saying, "Obama scared everybody. That is what really pushed us up, the stimulus and cheap money. When it stops, people will be nervous."

Financial stocks fell 3% on the news as more details emerged indicating that the president would move to limit the size of banks and, as he said, "ensure that no bank will own, invest in or sponsor a hedge fund or a private equity fund, or proprietary trading operations unrelated to serving customers for its own profit."

Even though the details of such a move would take months or even longer to work out, the market panicked on the news. Even stalwarts like Goldman Sachs (GS), which had just announced an enormous earnings gain, was hit for a loss of $6.92. And the losses were not limited just to stocks. In addition to financials, commodities felt the brunt of the announcement. 

Economic reports didn't help matters, either, with initial claims for the week ended Jan. 16, coming in at 42,000 more than expected. And continuing claims came in at 4.6 million, matching estimates.

At the close, the Dow Jones Industrial Average (DJI) had fallen 214 points to 10,390, off more than 2%. The S&P 500 (SPX) fell 22 points, closing at 1,116, and the Nasdaq (NASD) was hit for 22 points, closing at 2,266.

The NYSE traded 1.5 billion shares with decliners ahead of advancers by 4-to-1. The Nasdaq traded 862 million shares with decliners there ahead by just over 3-to-1.

Crude oil futures sank to a one-month low with the March contract falling $1.66 to $76.08 a barrel, and the Energy Select Sector SPDR (XLE) closed at $57.67, down $1.20. 

January gold fell $9.60 to $1,102.70 an ounce, and the PHLX Gold/Silver Sector Index (XAU) closed at $159.49, off $7.80, breaking its intermediate uptrend line and closing just $3.52 above its 200-day moving average.