Stocks lose 10 percent in post-election rout
Pastor Dale Morgan
*Stocks lose 10 percent in post-election rout*
Thursday, November 6, 2008 | 6:11 p.m. CST
BY TIM PARADIS/The Associated Press
NEW YORK — Wall Street plunged for a second day, triggered by computer
gear maker Cisco Systems warning of slumping demand and retailers
reporting weak sales for October. Concerns about widespread economic
weakness sent the major stock indexes down more than 4 percent Thursday,
including the Dow Jones industrial average, which tumbled more than 440
points.
Major indexes have lost about 10 percent since Barack Obama was elected
president — a vote preceded by a steep rally — and the losses represent
the Dow's worst two-day percentage decline since the October 1987 crash.
Paper losses during that time in U.S. stocks came to $1.2 trillion,
according to the Dow Jones Wilshire 5000 Composite Index, which
represents nearly all stocks traded in America.
Comments from Cisco that it saw a steep drop in orders in October and
reports from retailers that consumers are skipping trips to the mall
provided fresh evidence of the economy's struggles. Worries about
automakers and the financial sector compounded investors' unease.
A day ahead of Friday's key October employment report, a widely watched
barometer of the economy's health, the Labor Department said the number
of people continuing to draw unemployment benefits jumped to a 25-year
high. The increase by 122,000 to 3.84 million in late October marked the
highest level since late February 1983, when the economy was being
buffeted by a protracted recession.
"The economy is in a pretty significant downturn and I think that is
broad-based because it is all interconnected," said Ed Hyland, global
investment specialist at J.P. Morgan's Private Bank. "This is something
that we haven't really seen, this level of this rapid and significant
pullback both in the market and the economy."
Thursday's rout follows a drop of more than 5 percent in the market
Wednesday that saw the Dow plunge nearly 500 points as investors fretted
that weak readings on employment and downcast profit forecasts and job
cuts from financial companies to steelmakers signaled broad economic
troubles.
Still, the market's two-day slide follows an enormous run-up since last
week so some pullback was expected, analysts said. Through the six
sessions that ended Tuesday, the benchmark Standard & Poor's 500 index
surged 18.3 percent.
Richard Campagna, chief investment officer at Provident Investment
Counsel in Pasadena, Calif., contends the market's pullback isn't
surprising given the size of the recent run-up, which gave the Dow its
best run in 34 years last week. He said the weak economic readings
aren't a surprise because of the freeze in credit markets that has
disrupted lending and other economic activity since the mid-September
bankruptcy of Lehman Brothers Holdings Inc.
Campagna said the light volume and overall fear among investors is
exacerbating the market's volatility.
"Some people are pushing this market around more than they should be out
of fear," he said. "Many everyday investors are sitting on the sidelines."
"Everyone has been shellshocked with the moves in the market," he said.
The Dow fell 443.48, or 4.85 percent, to 8,695.79 after falling as much
as 502 in the final five minutes of trading. The blue chips remain 520
points, or 6.4 percent, above 8,176, their Oct. 27 closing low from the
market's yearlong decline.
Broader stock indicators also posted sharp losses. The Standard & Poor's
500 index fell 47.89, or 5.03 percent, to 904.88, and the Nasdaq
composite index fell 72.94, or 4.34 percent, to 1,608.70.
Over the past two days, the Dow is down 9.7 percent, the S&P 500 index
is off 10 percent and the Nasdaq is down 9.6 percent.
The Russell 2000 index of smaller companies fell 18.80, or 3.65 percent,
to 495.84 on Thursday, bringing its two-day decline to 9.2 percent.
Declining issues outnumbered advancers by about 5 to 1 on the New York
Stock Exchange, where consolidated volume came to 5.96 billion shares
compared with 5.29 billion shares traded Wednesday.
The dollar traded mixed against most other major currencies, while gold
prices fell.
Light, sweet crude fell $4.53 to settle at $60.77 a barrel on the New
York Mercantile Exchange.
Cisco Systems' comments added to investors' nervousness. The world's
largest maker of computer networking gear said orders declined sharply
last month, suggesting to the market that the weak economy and tight
credit markets are taking a larger-than-expected toll on many companies
around the world. Cisco fell 45 cents, or 2.6 percent, to $16.94.
A range of industries have been bruised by the economy. Japanese
automaker Toyota Motor Corp. lowered its annual profit forecast Thursday
to less than a third of what it was in the previous fiscal year. Toyota
tumbled $13.28, or 16.5 percent, to $67.09. Other automakers fell ahead
of quarterly results due Friday, amid worries about their health.
General Motors Corp. tumbled 76 cents, or 13.7 percent, to $4.80, while
Ford Motor Co. fell 11 cents, or 5.3 percent, to $1.98.
Among retailers, Wal-Mart fell 64 cents to $53.49 after reporting
better-than-expected sales. But most other retailers didn't attract as
many shoppers. Limited Stores Inc. fell $1.10, or 9.6 percent, to $10.41
while Ann Taylor Stores Corp. fell $3.09, or 26 percent, to $8.93.
A range of corporate news weighed on the market. News Corp. fell $1.62,
or 16.3 percent, to $8.31 after the media company warned of slowing
advertising revenue and slashed its 2009 forecast. Blackstone Group LP,
one of the world's largest private-equity funds, fell $1.05, or 12.2
percent, to $7.55 after reporting that the financial crisis hurt the
value of its investments.
Hyland said the day's news was a reminder that while the market might be
off its October lows following an array of government moves to revive
lending, the medicine will take some time to work.
"I think that we're in a bottoming process but the market will tend to
have three, four, or five bottoms as it goes through the bear market,"
he said.
Even the election, which had been one area of uncertainty, now presents
a new set of questions, he said, even though the market largely had
expected an Obama win.
"How does an Obama administration deal with it and what are the
implications?"
Bank-to-bank lending rates fell for the 19th straight day, a sign that
banks are becoming more willing to lend. The London Interbank Offered
Rate, or Libor, for three-month dollar loans dipped to 2.39 percent from
2.51 percent.
The three-month Treasury bill, considered the ultimate safe asset, saw
its yield dip further to 0.30 percent from 0.42 percent late Wednesday.
In general, a lower yield means higher demand, but it is also affected
by the federal funds rate.
The yield on the benchmark 10-year Treasury note fell to 3.69 percent
from 3.73 percent late Wednesday.
The latest round of economic worries largely overshadowed interest rate
cuts by central banks in Europe. The Bank of England slashed its key
interest rate by a bold 1.5 percentage points Thursday, while the
European Central Bank lowered its key rate by a half-point.
Britain's FTSE 100 fell 5.70 percent, Germany's DAX index fell 6.84
percent, and France's CAC-40 fell 6.38 percent. In Asian trading,
Japan's Nikkei index closed down 6.53 percent, and Hong Kong's Hang Seng
Index fell 7.08 percent.