WORLD / America
Dow Jones down more than 310
(AP)
Updated: 2007-07-27 08:18
NEW YORK - Wall Street suffered one of its worst losses of 2007 Thursday,
leading a global stock market plunge as investors succumbed to months of
worry about the mortgage and corporate lending markets. The Dow Jones
industrials closed down more than 310 points after earlier skidding
nearly 450.
Trader Peter Tuchman rubs his head as he works or the floor of the New
York Stock Exchange, Thursday, July 26, 2007. [AP]
Investors who had been able for months to largely shrug off discomfort
about subprime mortgage problems and a more difficult environment for
corporate borrowing finally decided it was time to sell after the
Commerce Department issued another disappointing home sales report.
Feeding the plunge were concerns that higher corporate borrowing costs
will curb the rapid pace of takeovers that had driven stocks higher this
year. Investors also feared the sluggish environment for home sales and
continued defaults in subprime loans would spur debt defaults and weigh
on corporate earnings.
While stocks plummeted, investors poured money into the safe haven of the
bond market. The soaring price of Treasurys pulled yields lower, and the
rate on the 10-year note plunged to 4.79 percent from late Wednesday's
4.90 percent.
"Worries that have been out there for the past couple of years are coming
to a head right now," said investment strategist Edward Yardeni,
president of Yardeni Research Inc. "It's show time."
Thursday's trading was the latest and most extreme in a series of
frenetic sessions over the past month - many also accompanied by
triple-digit swings in the Dow - as investors sold on worries about the
subprime fallout or bought on optimism that there wouldn't be any
widespread problems caused by mortgage failures. Many analysts have
described the back-and-forth trading as overwrought and based more on gut
emotion than careful consideration of market and economic fundamentals.
That was the feeling again Thursday.
"The rally in bonds at this point looks a little bit overdone," said Tom
Higgins, chief economist at Payden & Rygel Investment Management in Los
Angeles. "If you're going to park money temporarily then cash I think is
the way to be but I think that we're going to form a bottom. I think
people are going to be legging it back into the market."
The Dow plunged 311.50 or 2.26 percent, to 13,473.57 after falling 449.77
in earlier trading. The close was its worst since the 416.02 it lost on
Feb. 27, when a drop in the Shanghai stock market rattled world exchanges.
Broader market indicators also slid. The Nasdaq composite index tumbled
48.83, or 1.84 percent, to 2,599.34, while the Standard & Poor's 500
skidded 35.43, or 2.33 percent, to 1,482.66.
The Russell 2000 index, which reflects the movement of small-company
stocks, fell 21.02, or 2.59 percent, to 791.48.
Before Thursday's big drop, the Dow had been up 10.61 percent for the
year - and that margin has now been cut to 8.11 percent. The S&P 500 was
up 7.04 percent, and the market decline now puts it at a year-to-date
gain of 4.54 percent; while the Nasdaq's 9.64 percent increase has been
cut to 7.62 percent.
The declines triggered a global sell-off in stocks, causing minor losses
in Europe to accelerate rapidly along with the Dow's drop. In Europe,
Britain's FTSE 100 closed down 3.15 percent, Germany's DAX index dropped
2.39 percent, and France's CAC-40 fell 2.78 percent.
Markets were closed in Asia before the rout got under way. Japan's Nikkei
stock average closed up 0.88 percent and the Shanghai stock market
composite added 0.52 percent to an all-time high.
Wall Street also found more immediate reasons to sell during the session
- primarily the home sales figures from the Commerce Department, which
further eroded confidence in the housing industry's ability to rebound.
The department reported that sales of new homes fell 6.6 percent last
month to a seasonally adjusted annual rate of 834,000 units, more than
triple what had been expected and the largest percentage drop since sales
fell by 12.7 percent in January.
This boosted anxiety after quarterly results from home builders including
Pulte Homes Inc. and D.R. Horton Inc. were squeezed by a sluggish
environment from home sales and continued defaults in subprime loans.
"Wall Street continues to walk a wall of worry," said Ryan Larson, a
senior equity trader at Voyageur Asset Management. "The housing market
continues to be a story, and nobody knows when it will rebound. But, the
real concerns are about credit and oil pushing higher."
Also stunting stocks was the Commerce Department's disappointing durable
goods report. Though sales of big-ticket items increased by 1.4 percent
last month to a seasonally adjusted $217.07 billion, durable goods
excluding transportation equipment had an unexpected drop.
The Labor Department reported that jobless claims fell by 2,000 to
301,000 in the week ended July 21, slightly better than analysts'
expectations.
Investors also reacted negatively as oil prices climbed to almost $77 per
barrel during the session, stoking the market's worries about inflation.
However, crude pared gains in the afternoon when a barrel of light sweet
crude fell 93 cents to $74.95.
It all led to a frantic day for stock traders.
"It has been pretty volatile as of late, but now fears about a credit
crunch are spreading more than they have in the past - and that's causing
this drop," said Matt Kelmon, portfolio manager of the Kelmoore Strategy
Funds. "That's hurting the financials, and now energy companies are
joining the party because oil is so high. They make up a large part of
the S&P 500."
Wall Street, now at the peak of second-quarter earnings season, has been
extremely volatile lately. On Thursday, declining issues beat advancers
by a 14 to 1 basis on the New York Stock Exchange, where consolidated
volume came to a record 5.84 billion shares, up from 4.14 billion on
Wednesday.
Both NYSE Group Inc. and Nasdaq Stock Market Inc. reported that their
electronic trading systems were functioning normally, and no problems had
been reported.
Ford Motor Co. rose 12 cents to $8.09 after it reported cost-cutting and
a turnaround in its core automotive operations pushed its second-quarter
to a profit. The company had posted seven quarters of losses as it
grappled with sluggish sales and a major overhaul of its operations.
The Nasdaq's losses weren't as steep as other major indexes during the
session due to strength from Apple Inc., which surged $8.74, or 6.4
percent, to $146.00. The iPod and iPhone maker's earnings easily
surpassed Wall Street projections late Wednesday due to strong sales from
its computer offerings.
Home builders sank after several disappointing reports. D.R. Horton fell
32 cents to $17.16 after it posted a fiscal third-quarter loss on charges
to write down the value of unsold inventory and deposits on land.
Pulte fell 63 cents, or 3.1 percent, to $20.04 after it posted a
second-quarter loss amid the struggling housing market.
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