Shares of US investment banks and brokerages sank on Tuesday as global markets were swept into negative territory by a nearly 9 per cent decline in China's main stock index and worries that the US economy is slowing.
Goldman Sachs Group stock, which has soared 49 per cent in the past year to become the largest investment bank in the world by market value, slid as much as 8.8 per cent, marking the firm's biggest one-day percentage drop since Sept. 17, 2001, the day the market reopened after the 9/11 attacks.
By late afternoon, the stock was down $12.86 or 6 per cent, at $201.14.
Lazard Ltd, which specializes in selling merger and acquisitions advice, fell more than 5 per cent during the day, after a 38 per cent advance in the past year. Late in the session on Tuesday, the stock was down 3.98 per cent, or $2.13, at $51.36.
Shares of investment bank Lehman Brothers Holdings were down 4.45 per cent, or $3.46, at $74.37 and Morgan Stanley shares were down 4.66 per cent, or $3.66, at $74.86 in late afternoon trading. This was the fifth straight trading day of declines for these two firms.
"With the runs some of these stocks have had, that the overall equity market has had, there's a reason for the selling. We're probably due for a correction," said Sandler O'Neill & Partners analyst Jeff Harte.
The Dow Jones industrial average fell more than 500 points before cutting that loss as China's equity market sell-off fanned concerns about equity valuations there and a US government report showed a bigger-than-expected decline in January's new orders for U.S.-made durable goods.
Harte noted other factors have weighed on Wall Street shares, which have been on a tear since 2003. Recently, troubles in the subprime mortgage lending market have raised questions about the outlook for mortgage underwriting and trading results.
China's Shanghai Composite Index dropped nearly 9 per cent on fear the government would crack down on speculation that has helped send china stock prices to record highs. That contributed to broader worries about valuations in emerging markets.
"There are enough factors coming together to give investors a reason the pull the sell trigger," Harte said. "I think it's a correction, but it's a matter of how much more will they fall before things stabilize."
Brokerage stocks historically served as a proxy for the overall market and the economy, since trading and banking revenues increase when markets are growing. But the reverse also holds true, as falling prices can drive down trading and transaction activity.
The White House said on Tuesday it was monitoring movements in the financial markets, after a sharp decline in stocks in the United States and around the globe.
White House spokesman Tony Fratto declined to comment on whether any discussions were planned with the president's financial working group.
"We're always keeping an eye on movements in the market," Fratto told Reuters when asked about the share sell-off. "The president's economic advisers do that on a daily basis."
The Dow Jones industrial average fell more than 500 points in mid-afternoon as China's equity market sell-off fanned concerns about equity valuations there and some data indicated US economic growth may slow.
Growing anxiety about Iran's nuclear program also fed the abrupt reversal of investor optimism.
Asked whether President George W. Bush's financial working group would be consulted on the market drop, Fratto said: "I have nothing on that."
The high-level group is made up of the Federal Reserve chairman, Treasury secretary, chairman of the Securities and Exchange Commission and chairman of the Commodity Futures Trading Commission.