The DOW Industrials closed Thursday's trading below the Nov. 20 closing price to the lowest level since September 2002 as the financial sector continued to decline. The index did however manage to close just above the intra-day low for the entire bear market set back on Nov. 21. The DOW was being dragged lower by Bank of America and Citigroup, which were each off more than 11%, as investors remained concerned the banks could be nationalized by the government should they fail the Treasury Department's new stress-test.
There's just a lot of uncertainty around the banks right now, said Matthew Carniol, chief currency strategist at TheLFB-forex.com. Since Treasury Secretary Timothy Geithner's bank rescue fell flat with traders last week, the pressure has been relentless.
Falling bank stocks also took a toll on the Standard & Poor's 500 index as its financial sector slid 4%.
Friday's expiration of options and futures is also playing a part in the financial sector's decline as investors buy puts to hedge their equity holdings and speculators use put options to bet that prices will continue to fall.
Fresh economic data also weighed on sentiment; the number of U.S. workers drawing unemployment benefits for more than a week hit a fresh record high near five million, the fourth straight week that a new record was set. The Federal Reserve said Wednesday that the unemployment rate could near 9% by the end of the year and that the job market will remain weak through 2011.
The S&P hit a session low around 15:35 EST, rose in the next 10 minutes and then declined to finish above the low of the day. The S&P was about 26 points above the Nov. 20 close as trading ended. At Thursday's close of floor trading on the NYSE, the DOW was on 7465.95 after falling 89.68 points (-1.19%) while the S&P finished on 778.94 with a loss of 9.48 points (-1.20%). The technology-heavy NASDAQ closed on 1442.82 after declining by 25.15 points (-1.71%).
The dollar traded in risk-aversion mode as Wall Street declined but was mostly weaker on the day because futures markets rose in overnight trading. The greenback ended the day falling 1.04% to the euro, 0.58% to the pound and 0.93% to Australia's dollar while it gained 0.59% against the yen.
Treasuries fell for a second day, pushing up two-year note yields the most since November, as speculation grew that the U.S. will sell record amounts of debt next week. Yield on the 2-year note rose 2.8 basis points to 0.976% while yield on the 10-year note rose 8.5 basis points to 2.845%.
Crude for March delivery was recently trading up $4.26 (12.31%) to $38.88 per barrel after the weekly report on inventories showed a steep decline.
Gold for April delivery was recently trading lower by $3.40 (-0.35%) to 974.30 per ounce.