Stocks Slide; Bond Yields Hit Record Low
Despite a historic rally that drove the 30-year Treasury bond yield below 5% for the first time, the U.S. stock market fell hard Wednesday because of everything from quarter-end portfolio reshuffling to deepening worries about the global economy.
The Dow Jones industrial average sank 237.90 points, or 2.9%, to 7,842.62, ending a quarter in which it tumbled 12.4%--its worst showing in eight years.
The sell-off came even though the benchmark long bond dropped to 4.97%--a record low that seemed unimaginable just a few months ago--and followed by a day a Federal Reserve Board interest rate cut of a quarter-point.
The selling of equities appeared to stem in part from technical factors, such as mutual fund managers pruning their holdings on the final day of the quarter.
That was shown by the fact that large-capitalization stocks suffered a far deeper sell-off than small-caps. The Standard & Poor’s 500-stock index fell 3.1%, while the small-cap Russell 2,000 index dipped just 0.6%. Some big stocks at day’s end were swamped by far more sell orders than buy orders, a sign that institutions were making a last-minute dash for the door.
Volume on the New York Stock Exchange was 818 million shares, up 8% from Tuesday. Decliners led advancers by a 19-12 ratio.
Some analysts attributed the sell-off to disappointment that the Fed didn’t cut rates by a greater amount, and to profit-taking after the market’s fledgling rebound in September from its summer pullback.
“The market rallied 8% or 9% coming into this, so profit-taking was not surprising,” said Barry Hyman, senior market analyst at Ehrenkrantz King Nussbaum Inc., a New York investment firm.
However, some market strategists said the sell-off underscored just how severe global economic worries have become. To some, the fact that the Fed cut rates despite a still-strong U.S. economy is proof that upcoming news will be very bad.
In recent days, for example, big-name companies such as Gillette, Coca-Cola and RJR Nabisco Holdings have warned of disappointing revenue and earnings tied to troubled foreign markets.
“The economic situation and earnings prospects are much worse than a lot of people realized,” said Sung Won Sohn, chief economist at Norwest Corp. in Minneapolis.
Bank and brokerage stocks fell again on continued fallout from the near-collapse of the Long-Term Capital hedge fund. After sinking almost 13% at one point in the day, Bankers Trust fell $1.81, or 3%, to $59 amid rumors that it will be damaged by exposure to hedge funds.
In a sign that investors are worried about the economy, cyclical retail and transportation stocks fell hard. The Dow Jones transportation average sank 3.7% and neared its lows of earlier this month. Defensive issues such as utility and gold stocks rallied strongly.
Foreign markets sold off overnight. Japan fell 3% to a 12-year low. French stocks dropped 4.2%, German shares slid 3.7% and Spanish issues skidded 4.8%.
The weakness overseas fed a tremendous U.S. bond rally. The yields of Treasury bonds of all maturities fell broadly as investors continued the so-called flight to quality and anticipated more rate cuts.
“It’s the same story that’s been going on for a while,” said Mike Cloherty, bond market strategist at Credit Suisse First Boston Corp.
The 30-year bond’s close of 4.97% was down from 5.09% on Tuesday. That’s the lowest level since the Treasury began regular sales of 30-year bonds in 1977.
Among Wednesday’s highlights:
* Bank and brokerage stocks slid again on worries that their earnings will be hurt by hedge-fund loans and investments. Among brokers, Merrill Lynch sank $2.94 to $47.19, Lehman Bros. slid $1.38 to $28.38 and Morgan Stanley Dean Witter dipped $2 to $43.13.
As for banks, BankAmerica fell $2.13 to $60.13, Citicorp was off $4.75 at $93 and J.P. Morgan dropped $3.44 to $84.63.
* Telecom and related stocks slid amid worries that foreign companies will cut back on their capital expenditures. A day after seeing its stock skid 12%, Northern Telecom fell another $3.81, or 10.6%, to $32.06. Lucent Technologies slipped $5.25 to $69.25.
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Market Roundup, D6
