Late selling deflates Dow
Stocks closed lower Monday after a burst of late selling drove major market indexes into the red as investors fretted about the risks of a global recession.
The Dow Jones industrial average, coming off a week in which it fell 5.4%, slid 203.18 points, or 2.4%, to 8,175.77, its lowest level since April 1, 2003.
The broader Standard & Poor’s 500 fell 27.85 points, or 3.2%, to 848.92, and the tech-laden Nasdaq composite lost 46.13 points, or 3%, to 1,505.90.
The losses came at the end of another seesaw day. The Dow skidded 175 points in early trading amid growing concerns that the economic downturn that began in the U.S. housing market was spreading around the globe. Sharp drops earlier Monday in overseas markets -- especially in Asia, where Japan’s Nikkei 225 index fell 6.4% to a 26-year low -- rattled investors.
But a report showing an unexpected increase in new-home sales in September boosted shares of home builders, and evidence that the government’s bailout plan was starting to kick in gave a lift to financial shares. The Dow rallied to a 220-point gain before falling back as the final hour of trading approached.
The selling accelerated as the closing bell neared, with the Dow shedding more than 200 points in the final half-hour of trading. And though it came late, the sell-off was intense: Declining stocks outnumbered advancers 8 to 1 on the New York Stock Exchange, and nine of the S&P; 500’s 10 broad industry groups were down by day’s end, led lower by commodity and energy stocks.
“We were trading higher earlier on very light volume, but the buyers just couldn’t gather enough momentum to keep it going,” Alfred E. Goldman, chief market strategist at Wachovia Securities, told the Associated Press. “When confidence is razor-thin, the nervous tension goes way up and bam, the sellers take over.”
“It’s just an overall malaise about how bad the economic slump is going to be globally.”
Those fears were evident in the late bashing of financial shares. Citigroup, for example, fell 41 cents to a 12-year low of $11.73.
Extreme volatility has been a trademark of the current market downturn. The Dow has closed with a triple-digit gain or loss in 28 of the last 31 trading sessions. Oftentimes, waves of forced selling by mutual funds, hedge funds and other big investors scrambling to raise cash to meet redemptions have taken the starch out of rallies late in the day.
On a more positive note, both the Dow and the S&P; 500 have held above their Oct. 10 intraday lows of 7,884.82 and 839.80, respectively. Some analysts say falling through those levels could spark a fresh wave of selling.
Since reaching record highs in October 2007, the Dow is down 42% and the S&P; 500 is off 46%.
Investors are awaiting the results of the Federal Reserve’s policy-setting meeting today and Wednesday. Most traders are betting that the Fed will cut its target lending rate to 1% from its current 1.5%, a level not seen since 2004.
Investors were heartened early by comments from the head of the European Central Bank that an interest rate cut was “a possibility.” The central bank has resisted cutting rates to the degree the Fed has, despite calls for more coordinated rate cuts.
Signs coming from the beleaguered credit markets were mixed. Inter-bank lending rates continued to inch down but too slowly to satisfy some analysts, who say the rates need to fall more to stimulate lending. And yields on Treasury securities rose as their prices fell, suggesting an easing of investors’ compulsion to keep their money in a safe place.
In the commodity markets, oil for December delivery fell 93 cents to $63.22 a barrel on the New York Mercantile Exchange, while gold rose $12.60 to $741.70 an ounce.
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