Banking stocks closed down after a sharp sell-off in afternoon trading, despite an early lift on news that Bank of America Corp. would repay its federal aid.
The KBW Bank Index fell 3.02%, to 43.29, after peaking at 45.46 in morning trading on the announcement that Bank of America had a plan to repay its $45 billion in bailout funds.
Joe Saluzzi, a co-head of Themis Trading LLC, said the early excitement gave way to concerns about how much capital Bank of America must raise to carry out its plan.
"Initially, there seemed to be a little bit more euphoria," Saluzzi said. "Obviously, it's sold off since. Maybe [investors] second-guessed it."
Markets were also depressed by some mixed economic data, he said. The Institute for Supply Management's closely watched nonmanufacturing index fell below 50% last month, indicating that services activity shrank. A separate report showed that sales at the nation's retailers also unexpectedly fell in November, by 0.3% — an ominous start to the holiday season.
Saluzzi said these numbers have investors worried that the economy could be headed for a "double-dip" recession, in which the economy contracts again after rebounding.
"There's a lot of concerns out there," he said.
The Dow Jones industrial average fell 0.83%, and the S&P 500 fell 0.84%.
Matthew Shields, a trader at FIG Partners LLC, said he could not pinpoint a cause for the afternoon sell-off. Investors are just having a tough time figuring out where things are headed, he said.
"Everyone is asking the same questions," he said. "This market has had a hard time picking up direction the past couple weeks and continues to waver back and forth."
Market watchers, for the most part, had a favorable view of the Bank of America news. Analysts at CreditSights Inc., for example, said in a report that the move is positive for the Charlotte company in the long run, though the repayment could dilute shareholders by as much as 13%. Bank of America's shares closed up 0.7%.
Other large banking companies that got federal aid could follow Bank of America's lead, CreditSights said, particularly those with lots of capital like Fifth Third Bancorp, SunTrust Banks Inc. and Regions Financial Corp.
Those companies and most other large banks ended the day down. Fifth Third fell 1.81%, Regions fell 5.98% and SunTrust fell 4.04%.
Other losers for the day included PNC Financial Services Group Inc., off 6.37%; U.S. Bancorp, 4.83%; JPMorgan Chase & Co., 1.26%; and BB&T Corp., 2.37%.