Late Drop Leaves Dow Down 200
Stocks slid Monday, including one of the swiftest, bloodiest late-day drops yet in a month that's been chock full of them.
The Dow Jones Industrial Average ended with a 203.18-point loss, off 2.4%, at 8175.77, in a disappointing end to a session that had included triple-digit intraday gains. The blue-chip measure slid about 423 points from its daily high, set around 1:45 p.m. Eastern, with more than a third of its decline coming in just the last 10 minutes of trading.
The session had been a back-and-forth one, with traders weighing new signs of global recession against promising signals for the U.S. financial sector and the housing market. But the more the market retreated from its highs, the more that the selling seemed to feed on itself, with some players apparently forced out of unprofitable positions to raise cash.
Recently, such activity has often produced an avalanche of selling. As hedge funds and other deep-pocket players unload stock to cover margin calls from their brokers, the market falls further, forcing others to sell. Additionally, many automated programs trading firms use are set to get end-of-day prices, which can create an even more frenzied bottleneck once traders start rushing for the exits.
'Somebody must have realized they had to make some sales here at the end of the day,' says Todd Clark, director of trading, Nollenberger Capital Partners. 'It's kind of unsettling.'
The S&P 500 was off 3.2% to 848.92. All its sectors ended in the red, led by basic materials, off 7.4%; energy, off 6.4%; and industrials, off 5.4%. The technology-focused Nasdaq Composite Index fell 3% to 1505.90. The small-stock Russell 2000 fell 4.8% to 448.40.
The U.S. session got off to a sour start following a selloff in overseas shares driven by economic fears. Hong Kong's Hang Seng Index plunged 12.7%, and Tokyo's Nikkei 225 Average slid 6.4% to its worst level in 26 years. Investors fretted that the recent, rapid appreciation of the yen could harm Japan's export-dependent economy.
The declines in Asian equities prompted a move downward in European shares, though markets on the continent rebounded from their lows, with London's FTSE 100 Index posting a 0.7% decline after a much deeper loss.
U.S. investors recoiled from the declines overseas, but their mood improved after the mid-morning release of new data showing that new home sales, after hitting a 17-year low in August, rose 2.7% last month. The median new-home price fell 9.1% from a year earlier and inventories narrowed by 7.3%.
Copyright (c) 2008 Dow Jones & Company, Inc.Michael Darda, chief economist at MKM Partners, a trading and research firm in Greenwich, Conn., said the new data are promising. But the U.S. economy's problems are so deep-seated, including rising unemployment and weakening consumption, that he doesn't expect a full-blown economic rebound until late 2009.
In the meantime, corporate profits could remain weak, keeping the stock market from sustaining a rally. 'It's going to be a long, slow slog to normalcy,' Mr. Darda said.
That point was underscored late in the session as the market came unglued. But traders said the eleventh-hour plunge came amid relatively light trading volume -- a sign there could yet be more sellers waiting on the sidelines.
End-of-day activity was light compared to recent sessions, said Nick Kaupp, a trader with Source Trading in Stamford, Conn. 'It just felt like buyers walked away. We didn't see any big increase in selling -- it was actually quiet.'
Government officials around the world appear increasingly uncomfortable with the yen's rapid climb. The low-yielding Japanese currency had been used to fund corporate projects, speculative trades in an array of other assets, and other forms of risk-taking around the world.
Finance chiefs from the Group of Seven leading nations on Monday issued a statement warning investors against pushing up the yen too much. Market participants took that as a signal that officials could intervene in the markets to prevent the yen from making further gains. The statement said the recent 'excessive volatility' of the yen was a threat to the global economy.
Despite the statement, the yen continued to jump. The Japanese currency was recently stronger against both the euro and the dollar in recent trade. The dollar, which like the yen has recently been gaining against rival currencies, climbed against the euro and the British pound.
The U.S. Dollar Index, a gauge of the dollar's value against a basket of six overseas denominations, rose 0.5%.
Treasury prices fell. The two-year note shed 3/32 to yield 1.553%. The benchmark 10-year note fell 4/32 to yield 3.693%.
Oil futures fell $1.45 to $63.22 a barrel, and gold futures climbed $12.60 to $741.70 per ounce in New York trading. The broad Dow Jones-AIG Commodity Index was up 1.2%.
Peter A. McKay
Nollenberger Capital Partners的交易主管托德•克拉克(Todd Clark)说，一些人一定是认为他们需要在当天交易结束前抛出部分股票。这是一种不安的表现。
交易和研究公司MKM Partners的首席经济学家迈克尔•达达(Michael Darda)说，新的数据令人鼓舞。但鉴于美国的经济问题是如此深重，比如失业率不断上升、消费不断减弱等，因此达达预计2009年末之前美国经济不会全面反弹。
Source Trading的交易员尼克•考普(Nick Kaupp)说，与最近几个交易日相比，周一尾盘的活跃程度是比较轻的。他说，感觉上仅仅是买家们离场而去，卖盘数量并没有显著增加，市场交投实际上很清淡。
Peter A. McKay