Battle-weary investors remained skeptical of a banking quick-fix, and endured more grim economic fodder during the past week, causing US stocks to hit their lowest level since 1997. After the worst January (-8.8%) on record, the Dow Jones Industrial Average closed February (-11.7%) in the third worst position, after 1933 (-15.6%) and 1920 (-12.5%).

As if the recent declines aren't bad enough, Chart of the Day points out that in inflation-adjusted terms, the Dow has gained only 55% since its 1929 peak and a mere 10% since the 1966 high.



Global stock markets were generally down on the week as summarized by the week’s movements of the MSCI Global Index (-2.8%, YTD -18.4%) and the MSCI Emerging Markets Index (-0.6%, YTD -11.9%). In US dollar terms, the Russian Trading System Index (+5.3%) and the Hang Seng Index (+0.9%) were 2 of the markets to record positive returns.

Although still the top performer for the year to date (+14.0%), the Shanghai Composite Index (-8.0%) came under strong selling pressure last week. (Click here to access a complete list of global stock market index movements, in local currency terms, as supplied by Emerginvest.)

Of the major markets the Japanese Nikkei 225 Average closed higher in local currency terms (+2.1%), but failed to do so in US dollar terms (-2.9%) as a result of the sharp decline (-4.7%) of the Japanese yen against the greenback. Japan experienced record capital outflows over the past 3 months on the back of the country’s economy suffering a sharp slowdown, resulting in the yen’s worst monthly performance in 13 years.

As shown in the table below, the major US indices suffered another torrid week, recording 7 losing weeks out of 8 in 2009. Also, the Dow’s decline marked its sixth consecutive month in the red. Bespoke pointed out that losses during this period (-38.8%) were much larger than in any of the other 7 losing streaks of 6 months or longer.



US banking regulators last week launched a new Treasury rescue program, known as the Capital Assistance Program. Federal Reserve Chairman Ben Bernanke told lawmakers that, following a stress test of the 19 largest US banks, the Treasury will buy convertible preferred stock in financial institutions that are deemed to be undercapitalized in a “worst-case” economic scenario. He explained that the shares would be converted to common equity only as and when “extraordinary” losses occurred.

A real-world example followed only a few days later in the form of the third attempt to prop up Citigroup (C) in the past 5 months, with the government converting as much as $25 billion in preferred shares to common stock for an interest of up to 36%.

Bernanke played down the need for the nationalization of banks. However, it remains unclear whether the latest initiatives can avert a nationalization of select beleaguered US banks. BCA Research said: “We are skeptical, given that the private sector appears unwilling to inject further capital, especially at a point when the economy and underlying bank loan collateral values continue to erode rapidly.”