Market Recap - February 27, 2009

February was absolutely terrible for Wall Street. The Dow Jones industrial average dropped 11.7% this month. It was the worst February since 1933, when the Dow fell 15.6%. Today was no exception. The Dow dropped 119 points, or 1.7%, to 7,063 and the S&P 500 lost 17.74 points, or 2.4%, to settle at 735.09. Investors dumped shares of financials as the U.S. government announced that it would be taking a larger stake in Citigroup (C), while General Electric (GE) announced a dividend cut.

The U.S. government announced today that it would be converting $25 billion of Citigroup’s preferred stock into common stock. While the U.S. already owned the preferred shares, the conversion will raise the government’s ownership from 8% to 36%. Investors were terrified by potential dilution of value in Citigroup’s shares, and the company’s stock price plummeted by 39%, losing 96 cents to fall to $1.50.

Citigroup wasn’t the only financial company to suffer. Wells Fargo (WFC) lost $2.30, or 16% and Bank of America (BAC) dropped $1.37, or 25.75%. Similar plans to the Citigroup deal may be enacted for Wells and BAC, and the fear of that happening led to the big sell-off for both of those companies.

The Government’s GDP report that was released today showed that the production of the U.S. economy fell at a 6.2% annual pace at the end of 2008. This means that the value of all the goods and services in the United States is falling at a faster pace than expected. Major companies are taking hits as a result. GE reported that the company would be cutting its quarterly dividend by 68% in an effort save $9 billion per year.  This is the first time that GE has cut its dividend since 1950!

Wall Street handled the surge of bad news fairly well today, especially considering the severity and volume of bad news that was thrown at investors today. February was horrible, but let’s hope that March will be better.

Until next week,

 

-Matt Schwartz

College Trillionaire