Bank stocks were front and center when markets plunged Tuesday, and were left by the wayside when other stocks regrouped late in the day.
In a session that left even veteran market watchers dizzy, the Dow Jones industrial average plummeted 170 points in the first hour of trading and spent most of the day down about 200 points, before closing off 112 points at 8462.85.
After falling as much as 253, the widely watched index rallied in the last half hour of trading, adding 100 points as buy programs kicked in and some stalwart investors ventured in.
But bank stocks, among the most economically vulnerable of all equities, were battered throughout on investors' fears of a global recession.
The Standard & Poor's bank index closed off 3.31%, compared to 1.31% declines for the Dow and the S&P 500. The Nasdaq bank index fell 2.16%.
A global retrenchment would curtail lending and turn loans sour, making financial institutions particularly vulnerable to earnings hits and other difficulties, analysts said.
"Lending is going to slow; you're seeing this in the way bank stocks are acting," said Peter Green, technical analyst at Gruntal & Co.
The selloff was a reaction to an overnight plunge by Japan's market on word that the country's recession was worsening. Virtually every major foreign index-Asian and European-followed in the ensuing hours, leaving investors in U.S. stocks primed on Tuesday morning to do their own unloading.
"It's the tail wagging the dog all over the world," said Richard Davis, chief of equity research at Tucker Anthony Inc.
BankAmerica Corp. ended the day off $3.3125, at $80; Citicorp lost $7.25, to $145.25; and J.P. Morgan & Co., a component of the Dow, shed $4.6875, to $115.50.
Sellers were not selective, driving down shares at smaller financial institutions as well, struck by the possibility that a global economic slowdown will not hit only large banks that lend overseas.
"You have to take into account the regionals" that lend to companies doing business abroad, said Yun Jae Chung, bank portfolio analyst at Bessemer Trust Co.
In that sector, Fleet Financial Group lost $2.75, to $76.4375; Mellon Bank Corp. slid $2.3125, to $60.5625; and Union Planters Corp. was off $2.125, to $50.
The market's shudder, coming on the heels of the Dow's 299-point drop on Aug. 4, fueled bearish sentiments. The pessimists, including Cantor Fitzgerald market strategist Bill Meehan, said there was no clear sign of a bottom and warned investors about equities.
But others held to the premise that the market was taking a brief breather after its sustained growth.
"Unless the wheels fall off the economy, I don't see us going much lower," said Mr. Davis of Tucker Anthony. "At the very least, though, you can count on it being choppy for the balance of the year."
Veteran investors appeared anxious about the developments. Instead of the "buying opportunity" bravado that usually follows a steep slide, many investors said they would wait on the sidelines for a while.
"I don't know what's going on and I don't want to step into it," one financial adviser said.
Instead of looking for purchase opportunities, many mutual fund managers spent the day reviewing their portfolios, determining which stocks could be easily sold to stave a potential flood of sell-orders.
"You have to make the assumption that some people will be heading toward the doors," said David Ellison of FBR Fund Advisors, who manages two financial services funds with a total of $140 million of assets.
He said the market would remain queasy and he would steer clear until the Federal Reserve Board was heard on the matter. "We need them to come in and say, yes, we're concerned about the impact Asian markets are having on U.S. stocks," Mr. Ellison said. "That would show their attention to the U.S. market."
Ms. Chung said she remains fully weighted in money-centers and that regional bank shares, despite the pullback, "still look pricey.
"I'd like to say I'm looking for opportunities," she said. "But I don't know at this point."
