Bear traps Dow and Nasdaq
No more waiting: We’re now in a genuine bear market for the Dow Jones industrials and, for the second time this year, the Nasdaq composite.
Zapped by another jump in oil prices, the Dow closed Wednesday at 11,215.51, down 166.75 points, or 1.5%. That left the blue-chip index off 20.8% from its record closing high of 14,164.53 reached Oct. 9.
The tech-heavy Nasdaq slid 53.51 points, or 2.3%, to 2,251.46, putting it down 21.2% from its 2007 peak.
The Nasdaq already had visited bear territory briefly in March, when it was off as much as 24% from its high before rebounding.
A drop of at least 20% is considered the threshold for a bear market. Many other broad market indexes haven’t joined the bear fest, but they’re all close.
“I’d say it’s only a matter of time,” said Art Hogan, market analyst at Jefferies & Co. in Boston.
The Dow’s slide under the 20% threshold wasn’t a shock, given that the index had been battling to stay above it for days. But this still is a bell-ringer for investors, Hogan said. The last broad-based bear market on Wall Street was in 2000-02.
Crossing the 20% line “says the market is struggling, and it’s struggling for some very credible reasons,” he said.
The catalysts for Wednesday’s sell-off: the usual suspects, and a few more.
Oil futures jumped $2.60 to a fresh record close of $143.57 a barrel after the government said U.S. inventories declined last week, which surprised traders. And just to stick the inflation knife deeper into financial markets, copper, too, surged to a record because of miners’ strikes in Peru.
Here’s your bull market: The CRB index of 19 major commodities is up 32% year to date.
Meanwhile, the dollar slumped, an index of home builders’ stocks fell through its previous 2008 low, and General Motors’ shares skidded $1.77, or 15%, to a new 54-year low of $9.98 after a Merrill Lynch analyst warned that bankruptcy was “not impossible” for the automaker.
And two sectors that have been up sharply this year, steel and coal stocks, tumbled on concern that the economy’s slowdown will worsen.
All of this is leading up to another potentially big day for markets today, when the government reports on June employment. A net loss of 60,000 jobs is expected.
Also today, the European Central Bank is expected to raise its benchmark short-term interest rate for the first time in a year, citing inflation. Such a move could slam the dollar once again -- if currency traders didn’t get most of that out of their systems Wednesday.
The euro rallied to $1.589 from $1.579 on Tuesday.
Oh, and U.S. investors and traders will have to cram their reactions to the job report and any European rate move into a short 3 1/2 hours, because markets will close at 10 a.m. PDT today to give them a head start on the July Fourth holiday. That could mean wild trading that stokes the volatility meter.
So who’s ready for a long weekend?
In other market highlights Wednesday:
* The Standard & Poor’s 500 index fell 23.39 points, or 1.8%, to 1,261.52, putting it down 19.4% from its Oct. 9 peak. All 10 of the broad market gauge’s industry groups were in the red. Declining issues outpaced advancers by nearly 3 to 1 on the New York Stock Exchange.
* The Russell 2,000 index of smaller-company stocks fell 19.25 points, or 2.8%, to 672.34, leaving it 21.4% below its all-time high set in July 2007. The index was also below the 20%-decline level for two weeks in March.
* Government bond yields fell as some investors sought a haven in Treasury securities. The yield on the 10-year T-note slipped to 3.96% from 4% on Tuesday.
* An S&P; index of steel-related stocks dived 13%, trimming its year-to-date advance to 2.7%, after the Commerce Department said demand for primary metals fell 2% in May. Shares of Nucor slid $10.29, or 14%, to $61.94. U.S. Steel lost $21.95, or 13%, to $153.40. L.A.-based Reliance Steel tumbled $9.67, or 12%, to $68.44.
* Coal producer Massey Energy, the S&P; 500’s best performer this year, was its worst performer Wednesday, losing $17.47, or 19%, to $74.87. An S&P; gauge of coal stocks dropped 13%, paring its 2008 gain to 28%.
* Financial stocks in the S&P; 500 slumped 1.4% as a group, putting it down 45% this year. Merrill Lynch lost $1.10, or 3.4%, to $31.15, and Citigroup fell 29 cents to $16.84 after Oppenheimer & Co.’s Meredith Whitney reduced her second-quarter profit estimates for the firms, citing expected write-downs. Bank of America fell $1.27, or 5.3%, to $22.54.
But Lehman Bros. Holdings climbed $1.40, or 6.7%, to $22.36 after increasing the stock portion of employee pay this year as part of an effort to conserve cash.
* Circuit City Stores fell 23 cents, or 9%, to $2.32 after video rental giant Blockbuster said it was withdrawing its proposal to buy the electronics retailer. Blockbuster said the proposed deal, at a price of more than $1 billion, didn’t make sense because of market conditions. Blockbuster jumped 14 cents, or 5.6%, to $2.65.
* Microsoft fell 99 cents, or 3.7%, to $25.88 after it reportedly approached other media companies about a revived bid to buy Yahoo. Shares of Yahoo rose 68 cents, or 3.4%, to $20.88.
* Nvidia plunged 22% in after-hours trading. The maker of graphics chips cut its earnings forecast, citing a drop in demand, product delays and price competition.
* Among the Dow’s 30 stocks, GM led the retreat into a bear market, falling 74% since Oct. 9. Citigroup, American International Group and Bank of America each tumbled more than 50%.
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Times wire services were used in compiling this report.
