Dow Plunges 101 as Trade Deficit Shocks Wall Street : Stock Dive 5th Worst in History
Stock prices plummeted today for their fifth-worst one-day loss after the announcement of a $13.8-billion trade deficit in February sent shock waves through the markets.
The Dow Jones industrial average, which fell 2.98 Wednesday, dropped 101.46 to close at 2005.63, the second worst loss of 1988 following a 140.58-point drop on Jan. 8.
Declines overwhelmed advances 1,603 to 144 among the 1,978 issues crossing the New York Stock Exchange tape at the close. Volume was about 214.85 million, compared with 185.12 million Wednesday.
The White House and most economists said the trade deficit was still improving in spite of the setback, but the markets took the news badly anyway.
Most traders had convinced themselves the imbalance between imports and exports would be less than $12 billion, and they bailed out when reality hit at 8:30 a.m. on Wall Street.
“There was a lot of wishing-makes-it-so (attitude). People wanted to see a good number,” said Carl B. Weinberg, chief economist of High Frequency Economics.
The decline in the Dow triggered a ban on a form of computerized program trading on the New York Stock Exchange. It was the first time the ban has been prompted by a decline of more than 50 points. Last week, it was triggered by an increase of more than 50 points.
The dollar lost roughly 2% of its value against the Japanese yen, British pound and West German mark in spite of heavy intervention by virtually all the major central banks.
Stocks dropped from the opening bell on the government’s report that the February U.S. trade deficit expanded to $13.83 billion from $12.44 billion in January, an 11% gain.
U.S. oil imports jumped 1.2 million barrels a day in February to 8.1 million, the highest they have been since September, 1986. As a result, the trade deficit with members of the Organization of Petroleum Exporting Countries shot up by $270 million over January to $1.3 billion.
The deficit with Japan, the country with the largest trade surplus with the United States, also increased dramatically, by $700 million to nearly $5.1 billion.
It widened with the so-called newly industrialized countries--Singapore, Hong Kong, Taiwan and South Korea--too, but by a much smaller $44 million, to $2.8 billion.
Imports of foreign manufactured goods, oil and farm products increased by $2.6 billion in February to $37.4 billion. Leading the surge were imports of electrical equipment from abroad, up $323 million, and auto and truck parts, up $298 million.
The trade news stunned most financial analysts, who had expected the key economic number to fall to anywhere between $10 billion and $12 billion from January’s $12.44 billion.
The Dow sank almost 40 points within the first half hour of trading, then stabilized with a loss of 36 points soon after midday.
But the decline resumed when analysts said the trade data suggested the Federal Reserve would be forced to raise interest rates to defend the dollar and slow the U.S. appetite for imports.
“We need a significant slowdown in the U.S. economy. We have even more pain ahead of us and it will show up in a weaker economy deriving from higher interest rates,” said Lawrence Kreicher, international economist at Merrill Lynch Capital Markets.
Analysts said a recent run-up in prices had made the market more susceptible to a sell-off.
“The trade figures were so bad the market just went straight down. After all, stocks had risen 130 points on the Dow in recent sessions and were ready for profit-taking,” said S.G. Warburg trader Ken Ducey.
“Investors were looking for an excuse to sell. The trade figures gave it to them,” Ducey said.
