Terror Attacks Take Toll on Stock Market
Terrorism fears sparked by the train bombings in Madrid triggered a late stock market sell-off that knocked the Dow index to a loss of 168 points Thursday and erased a fledgling rally on Nasdaq.
The trading action left all three major Wall Street indexes in the red year to date, deepening this week’s decline. After four losing sessions, the Dow Jones industrial average is off 467 points, or 4.4%, for the week.
Nearly 200 people were killed in the Spanish bombings, which authorities immediately blamed on Basque separatist group ETA. But later Thursday, an Arabic newspaper in London said it had received a letter claiming responsibility for the bombings in the name of the Al Qaeda terrorist group, rattling world markets.
“As soon as they made the connection between Al Qaeda and the bombings in Spain, that caused the sell-off,” said Steve Colton, manager of the Phoenix-Oakhurst Growth & Income fund in Scotts Valley, Calif.
An attack by ETA would spell trouble for Spain and France, Colton noted, but involvement by Al Qaeda suggests a much wider risk. “The number of possible targets seems almost unlimited,” he said.
Al Qaeda is believed responsible for the Sept. 11, 2001, terrorist attacks on the World Trade Center and the Pentagon.
The travel and tourism industry took a beating in the wake of 9/11, and shares of airline, hotel and cruise line companies were among those that fell quickly in the last hour of trading Thursday, as news of a possible Al Qaeda link became known.
In Thursday’s volatile session, the Dow sank 168.51 points, or 1.6%, to 10,128.38; the broader Standard & Poor’s 500 index slid 17.11 points, or 1.5%, to 1,106.78; and the technology-heavy Nasdaq composite lost 20.26 points, or 1%, to 1,943.89.
Nasdaq had been up as much as 19 points before the late turnaround.
The retreat was wide, with three stocks falling for every one that rose on the New York Stock Exchange. The ratio of declining versus advancing stocks was almost as high on Nasdaq.
For the year, the Dow is down 3.1%, the S&P; is off 0.5% and Nasdaq has lost 3%.
Key European stock indexes fell even more sharply Thursday, with losses of 3.5% in Germany, 3% in France, 2.2% in Spain and 2.2% in Britain. Latin America slumped as well, with Brazil’s main index down 4.2%.
As U.S. investors shifted assets away from stocks and into bonds late in the session, Treasury yields sank. The yield on the benchmark 10-year T-note fell to 3.69% from 3.73% on Wednesday.
But gold, which typically has rallied on terrorism fears, was only slightly higher. Near-term futures in New York added 70 cents to $400.70 an ounce. The dollar weakened.
With the benchmark S&P; 500 posting gains in 13 of the previous 15 weeks, some strategists said the bull market was due for this week’s setback.
“After such a strong run, the market is taking a bit of a breather,” said Chris Orndorff, head of equities at Los Angeles-based investment manager Payden & Rygel. “I think that’s pretty healthy, not worrisome.”
Today marks the one-year anniversary of the market’s powerful surge that started at the onset of the U.S.-Iraq war, although technically the bull market began in October 2002.
With the S&P; 500 up 38% from last year’s low on March 11, Orndorff said some investors probably used Thursday’s terrorist news as “an excuse” to sell shares and secure profits.
Colton agreed, noting that corporate earnings expectations for this year were still trending higher. “The economy and profits are healthy,” he said.
But other analysts warned that selling could feed on itself in the near term, if more investors who’ve patiently ridden the market higher over the last year rush to take some money off the table.
The Nasdaq composite index already is down 9.7% from the 32-month high it reached on Jan. 26.
The Dow is down 5.7% from its recent high reached Feb. 11.
Despite generally strong economic data this year, some investors in recent days have grown more concerned about the pace of the U.S. recovery. The government’s report a week ago on February job growth was far below expectations.
Investors’ preferences for stocks have shifted in the last few weeks, away from technology and heavy-industry shares and toward consumer-related issues considered “defensive” -- meaning potentially less vulnerable to a sudden economic slowdown.
But even many of those defensive issues were pounded in Thursday’s decline, analysts noted. Heavy trading volume was a sign that many investors were scrambling for the exits.
Among the day’s highlights:
* In the travel sector, Starwood Hotels fell $1.09 to $37.60, Wynn Resorts was off $3.31 to $35.85, Walt Disney slid 50 cents to $24.95 and Carnival sank $1.95 to $42.46.
* Among industrial stocks, GM fell $1.18 to $44.90, United Technologies slid $1.47 to $85.63 and Deere was off $1.86 to $61.93.
* In the consumer sector, Procter & Gamble dropped $1.58 to $103.95, Coca-Cola lost $1.47 to $48.18 and Altria sank $1.44 to $56.32.
* Halliburton fell $1.73 to $28.24 after the Justice Department took over a criminal probe into the oil services company.
* Some technology issues bucked the downtrend. National Semiconductor rose 88 cents to $39.08 and Dell added 35 cents to $31.99.
* Trucking giant Yellow Roadway surged $2.84 to $32.61 after guiding analysts’ profit estimates higher for the first quarter.
* Among Southland stocks, J2 Global Communications, the Los Angeles-based provider of fax and voice-mail messages online, lost $2 to $19.46 after announcing a plan to acquire Canadian-based Electric Mail.
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Travel concerns
Amid Thursday’s decline on Wall Street, travel sector stocks were particularly hard hit after terrorist bombings in Spain.
*--* Thurs. Price Percent Company Close drop drop Hilton Hotels $15.63 -$0.39 -2.4% Delta Air Lines $8.52 -$0.24 -2.7% Caesars Entertainment $12.55 -$0.54 -4.1% AMR (American Airlines) $13.20 -$0.59 -4.3% Carnival (cruises) $42.46 -$1.95 -4.4% Royal Caribbean Cruises $42.07 -$2.09 -4.7% Wynn Resorts $35.85 -$3.31 -8.5%
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Source: Bloomberg News
