Updated from 4:17 p.m. EST
Stocks in New York sold off sharply Tuesday, continuing to slide into the close, as holes in the "Financial Stability Plan" left investors disillusioned and the long-awaited Senate passage of the economic stimulus plan did little to excite the Street.
Dow Jones Industrial Average
fell 381.99 points, or 4.6%, to 7,888.88, and the
fell 42.73 points, or 4.9%, to 827.16. The
was lessened by 66.83, or 4.2%, at 1524.73.
"Investors were expecting much more and were clearly disappointed, "said Quincy Krosby, chief investment strategist with The Hartford, about Treasury Secretary Geithner's proposal, which she calls "a framework without the details." At these levels, she says, there's no ambiguity on how the market felt about it.
The Dow was a sea of red, as all 30 Dow stocks lost ground, with
Bank of America
in the lead, shedding 19.3% and
provided one promising storyline for the day, a bright spot amid earnings and layoffs news from
, along with data showing U.S. wholesalers cut back on their inventories in December by the largest amount in nearly 17 years.
But the spotlight was on the unveiling of Treasury Secretary Geithner's
financial bailout plan, which had previously enticed the market with the possibility of surprise provisions, shaking out some short positions and helping to inspire a rally late last week. But today, it just failed to impress, said Matthew Smith, president of Smith Affiliated Capital.
Among other things, the
will establish a Public-Private Investment Fund in conjunction with the
, the Federal Deposit Insurance Corp. (FDIC), and the private sector, Geithner said. But it wasn't quite the "bad bank" concept -- a creation to eat up toxic assets that are derailing banks' balance sheets -- that had made water cooler talk.
"The issue is valuation, it doesn't matter whether you're selling a house or toxic assets,
the bank or owner has a number in their head and the reality is the market is nowhere near that," says Smith. The question is who's going to be evaluating the assets, and how will they reconcile the current and appropriate value, he says.
"There's a desperate need to deal with the bank's balance sheets," said The Hartford's Krosby. "The market had anticipated something far more specific and was actually hopeful that it might receive that."
But Geithner gave "a vague private/public sector investment scheme that did not talk about the pricing of these assets and one that will rely on the government to tacitly price the debt by providing public sector financing," said Michael Pento, chief economist at Delta Global Advisors.
The new program could involve putting public or private capital side-by-side and using public financing to leverage private capital on an initial scale of up to $500 billion, with the potential to expand up to $1 trillion, according to the Treasury Department.
Pento asks, "Will the government backstop the private sector purchases? If so, at what price? It's hard to believe the private sector will participate without government guarantees on the debt."
In stimulus news, the Senate passed the $827 billion bill by a 61-37 vote. It will now go to a joint committee of the House and Senate for a compromise. But clearly it didn't generate any market enthusiasm.
"The stimulus package was part of the overall attempt to create demand in the economy, but I think the market realized that without fixing the banks, it's going to be hard to really difficult to get the economy going," says Krosby.
Earnings season continues to wrap up, as Swiss banking giant
reported a $6.9 billion fourth-quarter loss and a $16.8 billion loss for 2008, and said its investment bank
will eliminate 2,000 more jobs by the end of the year.
In other corporate news, struggling American automaker
it will reduce salaried workers from 73,000 to 63,000 this year, with about 3,400 of those job cuts coming in the U.S.
GM shares fell back 4.6% to $2.70. Investors didn't seem displeased with UBS, though, as shares edged
Bucking the layoff and cost-reduction trends,
CEO Paul Otellini said the company would spend $7 billion over the next two years -- its largest investment ever for a new manufacturing process -- to build manufacturing facilities in the U.S. to deploy technology used to build faster, smaller chips that consume less energy. Nonetheless, Intel shares were off by 5.6% at $14.08.
Meanwhile, biotech icon
has asked Swiss pharma Roche
to pay $112 a share to acquire the 44% of the biotech company that it doesn't own, according to a recent SEC filing. The request is well above Roche's $89-a-share offer in July and scoffs at Roche's hostile tender offer for $86.50.
Genentech shares were down a mere penny, at $82.69.
Elsewhere Tuesday, Federal Reserve Chairman Ben Bernanke was testifying in front of the House Financial Services Committee hearing, stating that many of the current measures are starting to have an effect and that the feedback he has received so far has often been positive.
Bernanke has been kind of quiet lately, but there's no doubt about the importance of the Fed's role, and the discussion on trying to get consumer loans going again, says Krosby. "But it didn't overshadow the disappointment stemming from lack of specificity in the bank rescue plan."
Also, more economic data offered yet another reminder of the state of the economy, as U.S. wholesale inventories fell by a record 1.4% in December, after an 0.9% drop a month prior, and surpassing expectations for a decline of 0.8%, according to the Commerce Department.
The decline, representing the fourth consecutive monthly drop, was the greatest since records began in January 1992.
In afternoon trading, crude oil fell 2.01 to settle at $37.55, while gold was up $21.40 to settle at $914.20.
Longer-dated Treasuries were rising; the 10-year note was recently up 1 04/32 to yield 2.9%, the 30-year was adding 1 30/32, yielding 3.6%.
The dollar was recently stronger against the pound and euro, and weaker against the yen.
Stocks were mostly lower in Europe, as the FTSE in London and DAX in Frankfurt gave up 2.2% and 3.5%, respectively. In Asia, Japan's Nikkei lost ground, but Hong Kong's Hang Seng closed higher.