U.S. stocks slumped today in a broad sell-off led by the financial sector after President Barack Obama proposed tougher new rules on banks.
The Dow Jones industrial average closed down 213.27 points, or 2.01%, at 10,389.88, the S&P 500 stock index lost 21.56 points, or 1.89%, to 1,116.48 and the Nasdaq composite index fell 25.55 points, or 1.13%, to 2,265.70. All figures are preliminary.
Today's close wipes out all the gains since the beginning of the year, when the Dow opened at 10,430.69 on Jan. 4, the first trading day of the year.
“Glass-Steagall Lite is going to come, one way or another,” said Matthew D. McCormick, a portfolio manager at Bahl & Gaynor Investment Counsel, referring to the 1933 Glass-Steagall Act, which separated commercial banks from investment banks. The law was largely repealed in 1999.
“That's clearly impacting the markets,” Mr. McCormick said. He added, however, that many investors, particularly in financial stocks, were pocketing strong gains earned over the last year or so.
At the White House today, Mr. Obama, flanked by Paul Volcker, former Federal Reserve chairman and current chair of the Economic Recovery Advisory Board, outlined his plans that would, among other things, bar commercial banks from proprietary trading — using the bank's own money to generate investment gains.
Today's sell-off came on the heels of a drop Jan. 20 that was blamed on news that Chinese officials said they would slow lending to put the brakes on its surging economy. Mr. McCormick said that news has U.S. equity investors thinking more about the economic recovery at home.
“If you have a situation where you start to see liquidity lessen and access to funds become tougher in China, that's de facto (credit) tightening that's going to impact our stock market,” he explained.
“People should modify their return expectations,” he continued. “I expect you'll see some economic growth but it won't be as robust as people think. There are pockets of the economy that are growing but also some potholes out there.
“Then you add on political risk — a bank tax or whatever they want to throw at the banks — and people are saying ‘I'm going to take some profits off the table.'”