Nightmare on Wall St. brings more big losses
The fear gripping the stock market escalated Thursday as panicky investors pushed the Dow Jones industrial average to its biggest one-day percentage loss in more than two decades and worries grew that efforts to ease the global credit crisis wouldn’t work.
The Dow plunged 678.91 points, or 7.3%, to close at 8,579.19, its lowest level since May 2003. The blue-chip index is now down 39% from its all-time high set one year ago Thursday -- with half of that decline coming in the last seven trading days alone.
In Asia early today, markets opened sharply lower, with stocks sinking as much as 11% in Tokyo and 8% in Hong Kong.
The cascade of anxious selling indicated that many investors who held on through most of the recent wave of declines were now throwing in the towel, some analysts said.
“People are scared,” said Conrad Gann of TrimTabs Investment Research in Sausalito, Calif., which tracks mutual fund investments. “They are tired of losing money week after week in the stock market.”
For former surfer Donald Wise of Newport Beach, the stock plunge reminded him of wiping out at the legendary Wedge on the Balboa Peninsula in his youth. “You are three feet down and you can see the sky and the sun, but you can’t seem to get there,” he said.
A similar fear is spooking the stock market, said Wise, now a hotel industry consultant. “We just came out of a time that was so incredibly heady and then suddenly the pendulum swung far in the other direction,” he said. “And nobody knows how far it’s going to go.”
Governments around the world are desperately trying to stem the credit crisis that is engulfing stock markets and threatening economic damage. Steps taken include a $700-billion plan passed by Congress last week to buy up bad mortgages and a coordinated interest-rate cut Wednesday.
But analysts said there were few indications Thursday that the credit markets were loosening. Interest rates on loans between banks continued to rise, signaling that the arteries of global finance remained clogged.
In one hopeful sign, California officials expressed increased optimism that the state would be able to sell $4 billion in short-term notes next week to raise cash for routine expenses. Last week, Gov. Arnold Schwarzenegger warned that the state might ask the federal government for a loan if credit markets remained all but paralyzed.
Uncertainty could be the rule on Wall Street again today, especially for investors watching for signs of an economic slowdown. General Electric, a bellwether for both the industrial and financial sectors of the economy, is due to report its third-quarter earnings.
Late Thursday, the White House announced that President Bush would address the nation at 7:25 a.m. PDT today in an effort to calm markets.
“He will assure the American people that they should be confident that economic officials are aggressively taking every action to stabilize our financial system,” spokeswoman Dana Perino said.
Earlier, administration officials said that if conditions in the credit markets didn’t improve, the government might offer to buy stock in banks that needed more capital.
Perino described the proposal as “capital injections that would actually be investing in banks but not taking them over.” She said the idea was one of a range of options available to Treasury Secretary Henry M. Paulson.
Any purchases of bank stock or troubled mortgage debt are not expected for a few weeks, officials said, adding that the Treasury Department was “moving quickly to use new tools to improve liquidity, which is the root cause of this problem.”
In recent sessions, the stock market has rallied early in the day only to drop off a cliff in the last hour or so of trading. Analysts said that pattern could reflect selling of stocks by mutual funds, hedge funds and brokerage firms at the behest of clients. Those clients could be dumping shares out of fear of further losses or because of a need for cash triggered by the credit crunch or the shrinking value of their portfolios.
“Right now, you can take economic fundamentals . . . and throw them out the window,” said market strategist Joe Battipaglia at Stifel Nicolaus & Co. “This is mass liquidation at the point of a gun.”
TrimTabs said investors pulled a record $52.1 billion from U.S. stock and bond mutual funds in the last week. That followed a $72.3-billion outflow in September, the most in a single month. Much of the money has gone into bank accounts, Gann of TrimTabs said.
“People are going into the safest things they can find,” he said. “They’re avoiding risk in all forms.”
Thursday’s sell-off certainly had the earmarks of a stampede from a burning theater. All of the Dow’s 30 stocks were down, as were the shares of all but 12 of the 500 companies in the benchmark Standard & Poor’s 500 index, which sank 7.6%. Falling stocks outnumbered rising ones by 12 to 1 on the New York Stock Exchange.
The Dow’s percentage decline was its biggest since an 8% drop on Oct. 26, 1987. The biggest fall in point terms was a 777-point plunge 11 days ago.
In the last year, including Thursday, $8.3 trillion in U.S. stock market value has evaporated, according to Wilshire Associates. The Dow’s yearlong slide is now steeper than its 38% drop during the dot-com bust of 2000-02.
No stock symbolized the market’s state Thursday more than General Motors Corp. Shares of the country’s largest automaker, long a mainstay of the economy, plummeted 31% to $4.76, their lowest level since the Korean War. Beset by falling sales and tightening credit, GM has seen its stock plunge 87% in the last year.
Even hopeful signs were washed away in Thursday’s flood of selling. Oil futures, extending their recent slide, fell $2.36 to $86.59 a barrel, their lowest point in almost a year. Not too long ago, that would have cheered investors. Instead, they just trashed energy stocks, which were the second-biggest losers in the S&P; 500 after financial stocks.
Indiscriminate selling can signal what analysts call capitulation, a wave of desperation selling that indicates the market is near a bottom.
“So many signs say we are getting to that ultimate capitulation,” said David G. Dietze, chief investment strategist at Point View Financial Services in Summit, N.J. “But I thought that on Monday too.”
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maura.reynolds@latimes.com
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Zimmerman reported from Los Angeles, Reynolds from Washington. Times staff writers Marc Lifsher, Roger Vincent, Ken Bensinger and Tiffany Hsu contributed to this report.
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(BEGIN TEXT OF INFOBOX)
Big bears
The worst bear markets for the Dow (By percentage loss in the Dow)
1929-32: -89%
1906-07: -49%
1937-38: -49%
1919-21: -47%
1901-03: -46%
1973-74: -45%
1916-17: -40%
1939-42: -40%
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Source: BBC
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Los Angeles Times
