Dow Drops 416 on Global Market Plunge
Pastor Dale Morgan
Feb 27, 4:51 PM EST
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Dow Drops 416 on Global Market Plunge*
By MADLEN READ
AP Business Writer
NEW YORK (AP) -- Stocks had their worst day of trading since the Sept.
11, 2001, terrorist attacks Tuesday, briefly hurtling the Dow Jones
industrials down more than 500 points on a worldwide tide of concern
that the U.S. and Chinese economies are stumbling and that share prices
have become overinflated.
The steepness of the market's drop, as well as its global breadth,
signaled a possible correction after a long period of stable and
steadily rising stock markets, which had not been shaken by such a
volatile day of trading in several years.
A 9 percent slide in Chinese stocks, which came a day after investors
sent Shanghai's benchmark index to a record high close, set the tone for
U.S. trading. The Dow began the day falling sharply, and the decline
accelerated throughout the course of the session before stocks took a
huge plunge in late afternoon as computer-driven sell programs kicked in.
The Dow fell 546.02, or 4.3 percent, to 12,086.06 before recovering some
ground in the last hour of trading to close down 416.02, or 3.29
percent, at 12,216.24, according to preliminary calculations. Because
the worst of the plunge took place after 2:30 p.m., the New York Stock
Exchange's trading limits, designed to halt such precipitous moves, were
not activated.
The decline was the Dow's worst since Sept. 17, 2001, the first trading
day after the terror attacks, when the blue chips closed down 684.81, or
7.13 percent.
The drop hit every sector of stocks across the market. Riskier issues
such as small-cap and technology stocks suffered the biggest declines.
But analysts who have been expecting a pullback after a huge rally that
began last October and sent the Dow to a series of record highs, were
unfazed by Tuesday's drop.
"This corrective consolidation phase isn't just going to be one day, but
we don't believe this is going to be a bear market," said Bob Doll,
BlackRock's global chief investment officer of equities.
Some investors also tried to put Tuesday's slide into a longer-term
perspective.
"All who invest should feel grateful that we've had a great run for the
last 12 to 18 months," said Joel Kleinman, a Washington, D.C. attorney,
adding that he has learned to not read too much into any short-term ups
and downs. "This is another day in the market."
Still, traders' dwindling confidence was knocked down further by data
showing that the economy may be decelerating more than anticipated. A
Commerce Department report that orders for durable goods in January
dropped by the largest amount in three months exacerbated jitters about
the direction of the U.S. economy, just a day after former Federal
Reserve Chairman Alan Greenspan said the United States may be headed for
a recession.
"It looks more and more like the economy is a slow growth economy," said
Michael Strauss, chief economist at Commonfund. "Moderate economic
growth is good - an abrupt stop in economic growth scares people."
The market had been expecting the government on Wednesday to revise its
estimate of fourth-quarter GDP growth down to an annual rate of about
2.3 percent from an initial forecast of 3.5 percent, and grew
increasingly nervous on Tuesday that the figure could come in even lower.
The housing market, which the Street had been hoping had bottomed out,
also looked far from recovery after a Standard & Poor's index indicated
that single-family home prices across the nation were flat in December.
A later report from the National Association of Realtors said existing
home sales climbed in January by the largest amount in two years, but
the data didn't erase housing-related concerns, as median home prices
fell for a sixth straight month.
But a growing feeling that Wall Street, which has had a big run-up since
October, was due for a correction also played into Tuesday's decline.
"I think that the market was prepared to pull back. The constellation of
issues that were worrying the market came to a head," said Quincy
Krosby, chief investment strategist at The Hartford.
Just a week ago, the Dow had reached new closing and trading highs,
rising as high as 12,795.92.
The broader Standard & Poor's 500 index was down 50.33, or 3.47 percent,
at 1,399.04, and the tech-dominated Nasdaq composite index was off
96.65, or 3.86 percent, at 2,407.87.
A suicide bomber attack on the main U.S. military base in Afghanistan
where Vice President Dick Cheney was visiting also rattled the market.
China's stock market plummeted Tuesday from record highs as investors
took profits when concerns arose that the Chinese government may try to
temper its ballooning economy by raising interest rates again or
reducing more of the money available for lending.
"Corrections usually happen because of a catalyst, and this may be it,"
said Ed Peters, chief investment officer at PanAgora Asset Management.
"The move in China was a surprise, and when a major market has a shock
it ripples through the rest of the market. With all the trade that goes
on with China, there tends to be a knee-jerk reaction with that kind of
drop."
The Shanghai Composite Index tumbled 8.8 percent to close at 2,771.79,
its biggest decline since it fell 8.9 percent on Feb. 18, 1997. Since
Chinese share prices doubled last year as investors poured money into
the market after the completion of shareholding reforms, trading in
Shanghai has been very volatile.
Hong Kong's benchmark Hang Seng Index dropped 1.8 percent, and
Malaysia's Kuala Lumpur Composite Index fell 2.8 percent. Japan's Nikkei
stock average fell a more moderate 0.52 percent, but European markets
were rattled - Britain's FTSE 100 lost 2.31 percent, Germany's DAX index
dropped 2.96 percent, and France's CAC-40 fell 3.02 percent.
Bond prices shot higher as investors bought into the safe-haven Treasury
market, pushing the yield on the benchmark 10-year Treasury note down to
4.47 percent, its lowest level so far this year, from 4.63 percent late
Monday. The bond buying was sparked primarily by the durable goods
orders, which the Commerce Department said fell 7.8 percent, much more
than what the market expected.
The durable goods drop raised the chance of the Federal Reserve easing
interest rates later in the year - a possibility that makes the bond
market an attractive place to be right now.
The hope for slowing inflation could be dashed, though, if energy costs
keep rising. Oil prices initially fell Tuesday on worries that Chinese
demand could be dampened should its economy slow down, but later rose on
escalating tensions in the Middle East. Light, sweet crude for April
delivery fell 62 cents a barrel to $60.77 on the New York Mercantile
Exchange.
The dollar slipped against other major currencies, while gold also fell.
The Dow has been climbing at a steady rate since last summer, but over
the past few trading sessions, stocks have pulled back on the worry that
the market is due for a correction. Many analysts have noted that the
Dow hasn't seen a 2 percent decline in more than 120 sessions.
Data indicating a slower economy had recently been giving stocks a boost
on the hopes that the Fed will lower interest rates, which could
reinvigorate consumer spending and the struggling housing market. But
the market may fall further before that happens, analysts said.
"If in a week or two, the psychology in the U.S. market turns to the
realization that we're in a modest growth economy of 2 to 3 percent
growth, that will help temper inflation pressures going forward. If that
perception evolves, there's an increase in the likelihood that the Fed
will be lowering rates rather than raising rates. Structurally, it's a
development that should be good for the equity market, but it might be
an event that unfolds after prices are lower," Strauss said.
Declining issues outnumbered advancers by about 7 to 1 on the New York
Stock Exchange, where volume came to 2.38 billion shares.
The Russell 2000 index of smaller companies dropped 31.03, or 3.77
percent, at 792.66.
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