Largest slide of ’09 mars Obama inauguration as bank stocks in freefall

The Obama reign got off to a rocky start today – at least as far as the market was concerned – with small-caps generating the largest one-day slide of the New Year, the worst inauguration day decline ever and the worst overall decline in some two months as bank stocks continued to reel and the profit picture retained storm clouds. The Russell 2000 (NYSE:IWM) closed down 32.80, or 7.03% at 433.65 and is now down 13.1% for the year. Meanwhile, the Dow is off 9.4% for 2009 and the S&P 500 is off 10.8%.
 
The market was already coming off an extended holiday weekend, and today’s action was considered another “partial” day for investors with so much attention diverted to the historic inauguration ceremonies.

Even before the inauguration the market was backpedaling amid another bout of worries over the health of the world’s banking system. And the selling fury picked up steam when Obama declined to divulge much in the way of specifics about his fiscal stimulus plans.

Coming in to this morning’s stock market open, investors had to deal with news that the Royal Bank of Scotland would post the largest annual loss of any corporation in U.K. history, which only served to heighten the ongoing panic tied to banks here in the U.S. Investors are now worried that banks simply will not survive without in essence being “nationalized” at the expense of shareholders, ala the fate of American International Group a few months ago.

The KBW Banking Index fell a jaw-dropping 19% today, a stunning move for an index product. The nation’s #1 bank, Bank of America Corp. (NYSE:BAC) tumbled 26%, while Wells Fargo & Co. (NYSE:WFC) shed 23% and Citigroup Inc. (NYSE:C) fell 18% and slipped below $3 dollars a share. Within the financial spectrum, money management firm State Street Corp. (NYSE:STT) collapsed 58% after reporting disappointing profit news.

The selling mood was so prevailing today that a recovery bounce in crude oil prices failed to drum up buying interest for energy or other commodity stocks. Crude oil rose some 6% into the expiration of the February futures contract, but energy stocks were down about 5% in sympathy with the decline in overall equities. Even the dramatic slide in stocks failed to lift credit markets, which are worried about overcoming a mountain of supply that will be issued to fund various stimulus projects and the ongoing rescue/bailout plans.

Small-caps on the move today included Aspen BioPharma Inc. (Nasdaq:APPY), which tumbled 82% amid disappointment over a trial for a drug tied to appendicitis and abdominal pain. VSE Corp. (Nasdaq:VSEC) slumped 45% on news that the U.S. Army had rejected a new contract bid from the firm Natus Medical Inc. (Nasdaq:BABY) fell 25% as the maker of baby care products revised their outlook downward.

The chart picture for small-caps deteriorated in a big way today, sinking through important short-term support at 453, which obliterated the hope for last week’s late recovery move. Once through 453 support, the market also made short work of the recent lows along 439, which makes a retest of key support at 416 more likely in the days to come. After the close today, various corporate profit reports were coming in mixed, but tech bellwether IBM did beat the forecast and was up about 3% in extended trading, which might foster some goodwill moving into Wednesday’s session.

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