MarketView for February 20

Summary

Stock prices fell sharply again on Friday, sending the Dow Jones industrial average down to a 6-1/2-year low, the reason being fears that the government may be forced to nationalize some big banks. However, the White House issued its most direct statement yet with regard to the banking system, stating that the Administration strongly supports a privately held banking system. The S&P 500 hit a 12-year low before the White House statement.

Citigroup and Bank of America were buffeted by rumors that they were candidates for nationalization. Nonetheless, they were able to end the day down 22.3 percent and 3.6 percent, respectively. Bank of America closed at $3.79, and was the most heavily traded stock on the Big Board. Citigroup ended at $1.95, the first time since January 1991 it closed below $2. Both banks had seen their shares fall more than 35 percent before the White House comments.

White House spokesman Robert Gibbs told a news conference: "This administration continues to strongly believe that a privately held banking system is the correct way to go, ensuring they are regulated sufficiently by this government.

The White House statement followed comments by Senate Banking Committee Chairman Christopher Dodd, who told Bloomberg news in an interview that a nationalization of some banks could be needed "at least for a short time. CNBC television reported the U.S. Treasury department will provide some details on the Obama administration's bank rescue plan next week, helping financial shares cut losses.

Wall Street views the stabilization of the banking sector as crucial for the economy to avert further deterioration, with both businesses and consumer lending still constrained. Besides financials, top drags also included energy companies, with Chevron down 2.4 percent at $65.07 amid a pullback in oil prices, and Boeing down 3.4 percent at $36.31.

Shares of Research in Motion ended down 7 percent at $39.15, while Adobe Systems fell 7.7 percent to $18.04.

For the week, the Dow fell 6.2 percent; the S&P 500 was down 6.9 percent; and the NASDAQ fell 6.1 percent. The expiration of February options may have exaggerated the intraday swings in the market on Friday as traders unwound their February positions and rolled them into March and longer-dated months.

Crude Lower

The price of crude oil was down on Friday as the deteriorating global economic outlook continued to weigh on the market. Domestic sweet Texas crude for March delivery, which expired on Friday, settled down 54 cents per barrel at $38.94, after posting the biggest settlement gain since December 31 in the previous session. April Brent crude settled down 10 cents per barrel at $41.89.

Earlier in the day, crude prices had fallen below $38, but recovered somewhat after the White House said it strongly believed in a privately held banking system, soothing market fears about the possibility of U.S. bank nationalizations.

Crude inventories in the United States fell slightly last week on lower imports and higher demand, the Energy Information Administration said, ending seven straight weeks of builds against market expectations.

Crude prices have fallen more than $100 a barrel from the peaks hit last July as the worsening economic crisis has bitten into oil demand, prompting OPEC to agree to deep output cuts.

In the latest indication that OPEC members are complying with the agreed cuts, Kuwait notified at least two buyers in Asia that it will keep curbs of 5 percent below contracted volumes for April-June term crude oil supplies, steady from March.

Gold Exceeds $1,000 per Ounce

The price of gold rose above $1,000 an ounce on Friday for the first time since March last year as a way to preserve wealth amid a tumbling stock market. Long-term inflation worries fanned by the massive economic stimulus package signed by President Barack Obama this week has driven the price of gold higher gold, as gold is perceived by many in the world as the most likely asset to hold its value against economic head winds.

Gold bullion continued to appreciate against other asset classes and commodities on Friday amid renewed fears that the government could be forced to nationalize banks amid a worsening financial crisis. A ratio of gold against the S&P 500 index rose to its highest level since September 1990, and gold/oil ratio was at its loftiest since December 1998.

Gold futures for April delivery on the COMEX division of the New York Mercantile Exchange settled up $25.70, or 2.6 percent, at $1,002.20 an ounce. They reached a session high of $1,007.70, their highest price since March 2008. Spot gold hit a peak of $1,005.40, its strongest level since March 18. It was at $993.80 an ounce at 2:42 p.m. EST, up 2.0 percent against $973.75 in New York late on Thursday.

The metal is poised to rise further, possibly targeting last March's all-time high of $1,030.80 an ounce. Gold options market also pointed to sharply higher prices of the metal.

Meanwhile, New York's SPDR Gold Trust, the No. 1 gold exchange-traded fund commonly known as GLD, said its holdings rose nearly five tonnes to a record 1,028.98 tonnes on Thursday, while the iShares Silver Trust's silver holdings climbed 18.4 tonnes to an all-time high of 7,892 tonnes.

Among other precious metals, spot silver was at $14.41 an ounce, up 2.9 percent from its Thursday finish of $13.01. Spot platinum was at $1,081.00 an ounce, up 1.4 percent from its previous close of $1,066.50, while spot palladium was at $212.50, down 0.5 percent from its late Thursday New York quote.