Stocks Plunge in Global Sell-Off; T-Bond at 5.99%
Global stock markets suffered steep losses Thursday as worries mounted that Asia’s economic disaster will have worse-than-expected repercussions worldwide.
On Wall Street the Dow Jones industrial average tumbled 129.80 points, or 1.6%, to 7,848.99, the fourth consecutive decline for the blue chip index.
The Nasdaq composite index of mostly smaller stocks was slammed for a 2.4% loss, bringing its decline since Monday to 5.6%, as the powerful rally that had lifted U.S. stocks from their late-October lows gave way to heavy profit-taking.
Meanwhile, stocks’ losses were the bond market’s gain, as investors snapped up bonds in a “flight to safety.” The bellwether 30-year Treasury bond yield slid from 6.07% Wednesday to 5.99% Thursday, the first close below 6% in 22 months.
Stocks’ declines in Europe, Latin America and North America were triggered by another plunge in share prices overnight in Asia, where many markets have already plummeted 30% to 60% year-to-date.
In a continuing vote of no confidence in many East Asian economies--despite international financial bailouts already underway in Thailand, Indonesia and South Korea--currencies of those countries and others have sunk to record lows this week, dragging share prices down as well.
Early today the currency carnage showed no sign of abating. Thailand’s currency, the baht, hit a record low of 44.3 to the dollar, as the country’s prime minister appealed for calm; the Indonesian rupiah hit a new low of 4,900 to the dollar.
Battered Asian stock markets fell further early today. The main Indonesian stock index was off 6% after sliding 4.8% on Thursday. The South Korean index lost 6.9% early today after dropping 5.62% on Thursday. South Korean shares now have lost a stunning 75% of their value year-to-date, measured in U.S. dollars.
The sell-offs weighed on the beleaguered Japanese stock market as well. The Nikkei-225 index was off 1.4% at midday today, to 15,819, after tumbling 2.6% on Thursday.
European markets also suffered heavy selling Thursday, as did Latin American markets.
On Wall Street concerns focused on the technology sector, in the wake of several key companies’ warnings in recent days that near-term earnings will be hurt by weaker demand from Asia and by negative foreign currency translations, as the dollar soars in value.
“It’s easy to just blame Asia,” said Brian Belski, technical analyst at Dain Bosworth in Minneapolis. “But the companies and the industries that have very heavy exposure there are in for some trouble.”
Many investors seemed more inclined to sell Thursday and ask questions later. Losers swamped winners by nearly 3 to 1 on the New York Stock Exchange and on Nasdaq, in heavy trading.
The fresh losses in stocks, coupled with a government report of lower-than-expected November retail sales--a potential sign of a weakening U.S. economy--sent some investors flocking to the relatively safe haven of bonds.
“People are talking about the flight to quality again,” said Ken Fan, a government bond trader at Paribas Corp.
Bond yields fell across the board. The yield on two-year T-notes dropped to 5.66% from 5.73% Wednesday.
“Inflation is dormant and as long as it stays that way the bonds can do better,” said Terrence Pigott, head government bond trader at Daiwa Securities America Inc.
But what it will take to get investors enthused about stocks in the near term isn’t clear, should negative forecasts about corporate earnings persist. Even so, analysts point out that the Dow index remains well above its closing low of 7,161.15 on Oct. 27, the day of the mini-crash that sliced 554 points from the index.
The Nasdaq composite index, however, is just 1.5% above its Oct. 27 close of 1,535.09.
Among Thursday’s highlights:
* Tech shares tumbling on worries about Asia’s effect on business included semiconductor equipment firms Applied Materials, down $4.44 to $27.31; and Kulicke & Soffa, down $6.75 to $18.13. Kulicke said its business is being hurt by South Korea’s woes.
Elsewhere in the tech sector, Intel fell $2.88 to $71.81, Compaq slid $4 to $56, Quantum tumbled $3.88 to $19.94, Microsoft lost $3.19 to $139.06 and IBM sank $4.88 to $101.63. IBM’s 1997 earnings estimate was trimmed by Merrill Lynch.
* Bank stocks dropped again on fears of their potential exposure to Asia. Citicorp lost $3.75 to $128.25, BankAmerica slid $3.75 to $74.75 and BankBoston dropped $1.38 to $92.19.
* Retail issues were weak after the November sales report. J.C. Penney lost $2.06 to $62.56 and Federated Department Stores sank $1.81 to $45.69.
* Among industrial names, GE was down $1.25 to $72.50 and Eastman Kodak fell $1.38 to $55.63, while Alcoa dropped $2.56 to $68.94.
In commodity markets silver was hit by profit-taking after surging on Wednesday. Near-term futures lost 5.3 cents to $5.77 an ounce. Gold lost ground too, off $2.60 to $284 an ounce.
In currency markets the Canadian dollar slid to an 11-year low against the U.S. dollar, finishing at 69.98 U.S. cents, despite heavy intervention by the Bank of Canada.
