US stocks suffered their worst one-day percentage drop since October yesterday as US President Barack Obama proposed tough restrictions on banks that would squeeze profits.
Major banks slid, with Goldman Sachs falling 4.1 per cent despite posting stronger-than-expected fourth-quarter results, and JPMorgan Chase shed 6.6 per cent, after Obama proposed limiting how banks invest their own money.
“It looks as though banks may be going down the path of being regulated like utilities,” said Tom Sowanick, chief investment officer at The Omnivest Group in Princeton, New Jersey.
Obama said banks should no longer be allowed to own, sponsor or invest in hedge funds for proprietary profit. For details, see. Proprietary trading – when a firm uses its own money to make bets on markets – has been an engine of earnings for some major banks.
The proposals must receive congressional approval.
The Dow Jones industrial average fell 213.27 points, or 2.01 per cent, to end at 10,389.88. The Standard & Poor’s 500 Index was down 21.56 points, or 1.89 per cent, at 1,116.48. The Nasdaq Composite Index was down 25.55 points, or 1.12 per cent, at 2,265.70.
The Dow had its worst two-day percentage decline since June, while the Dow and S&P 500 had their worst one-day percentage losses since late October.
It was the second straight day of steep losses for stocks, with the market falling from 15-month highs on Wednesday on worries over China’s curbs on bank lending.
After the market’s close, shares of Google fell 4.8 per cent to $555 after the company reported quarterly results.
In regular trading Google rose to $582.98 on the Nasdaq. American Express also declined after reporting results, slipping 1.7 per cent to $41.44 in after-hours trading.
In other markets, the dollar fell and bonds rose in a flight to safety as the stock market tumbled on Obama's announcement. Shares of Goldman Sachs closed down at $160.87, while JPMorgan Chase ended down at $40.54.