090139: Stocks, Bonds Greet Obama with Bronx Cheer

The Dow Jones Industrial Average suffered its biggest Inauguration Day drop in its 112-year history Tuesday, falling 332 points or 4% to 7949, its lowest level since Nov. 20. Meanwhile, the S&P 500 lost 5.3%, and is now down 11% in the first 12 trading days of 2009; the Nasdaq shed 5.8%.

Heading into this week, the hope on Wall Street was the market would rally on both the "feel good" tidings surrounding Obama's inauguration, and the fact the broad market held up relatively well last week despite ongoing carnage in the financials.

So far, no good on that theory as financial markets stumbled badly Tuesday amid, yes, ongoing carnage in the financials, which sent the Financial Select SPDR (XLF) down 16.5% to a new-52 week low. Update:

* State Street Corp., the largest money manager for institutions, tumbled 59% after unrealized bond losses almost doubled, as detailed by Bloomberg.

* Bank of America fell nearly 29% after Friedman, Billings, Ramsey's Paul Miller predicted the firm needs more than $80 billion in new capital to offset losses. Miller also said Wells Fargo may need to cut its dividend and the bank's shares fell 24%.

* Royal Bank of Scotland plummeted 69% after forecasting a loss of about $12 billion, prompting the U.K. government to take a bigger stake in the firm and a big step toward outright nationalization.

Earlier in the day, long-dated Treasury prices were tumbling relatively worse than stocks amid the growing realization that more bank bailouts - if not outright nationalizations - are going to lead to tremendous borrowing from governments worldwide, and an accompanying huge supply of fixed-income paper. But fears of bank nationalizations that totally wipe out existing bond and stockholders alike helped Treasury prices rebound from their worst levels of the session, especially short-dated securities; still, the 30-year bond lost nearly 2 points, a very big decline in bond-land that sent its yield up 85 basis points to 2.96%.

Once again, it's a hard day to find a silver lining for those long financial assets and many traders are now braced for an imminent retest of the Nov. 20 closing (and multiyear) lows of 7552 for the Dow and 752 for the S&P 500.

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