Financial stocks took a pummeling in the broad market Monday and the American Banker index of 225 banks shed 5.39% as a selloff in the troubled technology sector infected the entire market.
Shares of the largest U.S. banks were among the hardest hit, the American Banker index of the top 50 banks falling 4.71% Monday. J.P. Morgan Chase & Co. led the way, losing 7.07% to $45.49, Citigroup Inc. fell 4.13%, to $47.10, and Bank One Corp. dropped 5.26%, to $34.20. Bank of America Corp. fell just 1.68%, to $51.62. Even Wall Street darlings Northern Trust Corp. and Bank of New York Co. lost, the Chicago company falling 6%, to $62.6875, and Bank of New York 4.47%, to $47. Nor were thrifts spared, including Washington Mutual Inc., which had the biggest drop in that sector in falling 6.32%, to $49.98.
The American Express broker-dealer index lost 6.41%, the Dow Jones industrial average 4.1%, and the tech-heavy Nasdaq 6.25%.
Analysts said the volatility will persist at least until next Tuesday, when the Federal Reserve Board is expected to deliver the interest rate cut that investors are counting on.
But some say they should not count on a cut. The Department of Labor reported Friday that the unemployment rate held steady in February at 4.2%, and that could make the Fed think twice before lowering interest rates aggressively, economists said. And if it decides against a further rate cut, some analysts warn, financial stocks could be in more trouble.
Investment banks also had a rough day. Merrill Lynch & Co. fell 9.29%, to $51.25, and Morgan Stanley Dean Witter & Co. 8.59%, to $56.
The brokerage sector continued to slide in the wake of fading optimism that the Fed may aggressively lower interest rates, wrote Dean Eberling, a broker-dealer analyst at Keefe, Bruyette & Woods Inc.
Scott Valentin, an analyst at Friedman Billings Ramsey, said the entire sector will be chilled if the Fed gets stingy with its cuts.
The psychology is very fragile, Mr. Valentin said in a meeting Monday at American Bankers offices. Investors would rather see rate-cuts than indications of strength in the economy.
Uncertainty about the Feds direction could lead to stormy market conditions.
The employment release, with modest gains in each of the past two months, depicts a picture-perfect soft landing, Richard DeKaser, chief economist for Clevelands National City Corp., said Friday. Look for a modest quarter-point cut in the federal funds rate not the half-point that markets have come to expect.
Wells Fargo & Co. got encouraging words Monday from Joe Morford of Dain Rauscher Wessels as the analyst reiterated his strong buy, but its stock still fell 5.33%, to $47.80.
In his research note Mr. Morford wrote that Wells deal to buy ACO Brokerage Holdings Corp. of Chicago, announced Thursday, would not only create the nations fifth-largest bank-owned insurance agency operation, but should also give Wells a big lift in cross-selling by adding 112 offices in 29 states.