Wall Street calmer but still fearful
U.S. stocks fell further Friday to end a tumultuous week, but the market closed up from its low point of the day as investors’ fears appeared to stabilize — though at high levels.
The Dow Jones industrial average lost 139.89 points, or 1.3%, to 10,380.43 for the session, rallying back from a drop of as much as 280 points early in the day.
Trading was heavy, but there were no reports of the kind of outrageous swings in individual stocks that marked Thursday’s wild action, when the Dow briefly was off nearly 1,000 points late in the day before quickly recouping most of that to close down 347 points.
Amid a flurry of sell orders Thursday, some big-name stocks plummeted from $40 or $50 a share to as little as one penny before quickly rocketing back.
The Securities and Exchange Commission said Friday that it was still investigating the extraordinary volatility but hadn’t reached any conclusions.
On Friday, “There were no liquidity issues” similar to the previous day’s debacle, said Michael James, managing director for trading at brokerage Wedbush Morgan in Los Angeles.
Although Thursday’s stunning meltdown and reversal left even many Wall Street pros shaken — and questioning the market’s integrity — some investors decided that the week’s losses were an opportunity to dive in rather than a reason to flee stocks.
Tyson Roberts, a 40-year-old Los Angeles investor, said he decided to plunk a total of $4,500 on Friday into two Vanguard Group index mutual funds, one that owns the stocks in the Standard & Poor’s 500 index and another that owns foreign shares.
After 14 months of mostly climbing share prices, “I’ve been waiting for the market to turn back down” to buy, Roberts said. With the S&P 500 down 6.4% for the week and off 8.7% from its recent high reached in late April, “This is a good discount,” he said.
Other broad U.S. market indexes now are down more than 10% from their recent peaks in the biggest pullback since the market began to rebound in March 2009.
Bullish investors took heart Friday from the government’s report that the economy added a net 290,000 jobs in April, the biggest monthly gain since March 2006.
Stocks opened higher after that report, only to quickly sell off. Share prices then gyrated the rest of the day.
The S&P 500 ended down 17.27 points, or 1.5%, to 1,110.88. The Nasdaq composite slid 54 points, or 2.3%, to 2,265.64.
Some nervous investors turned to gold, pushing the price up $13.10 to $1,210 an ounce, nearing the all-time high reached last December. But the panicked flight into U.S. Treasury bonds on Thursday didn’t carry into Friday. The 10-year T-note yield edged up to 3.42% from 3.40% on Thursday, though it was down from 3.66% a week earlier.
Many analysts remained focused on the financial crisis in Europe, one of the main issues driving stocks lower worldwide this week. Amid rising doubts that cash-strapped Greece could make good on its heavy debts, European governments scrambled last weekend to approve a package of $146 billion in loans for the Greek government.
But the bailout failed to calm European markets amid fear that Portugal, Spain and perhaps other deficit-ridden countries also might need help — and that the government debt woes could trigger a new banking crisis.
On Friday, even though the German parliament voted to approve its share of the Greek bailout, European stocks tumbled again. Spain’s market slid 3.3%, Portuguese stocks sank 2.9% and the German market slumped 3.3%.
Even so, the battered euro currency rallied for the first time this week, rising to $1.273 from a 14-month low of $1.26 on Thursday.
Currency traders said the euro got a lift from expectations that the European Central Bank this weekend would announce a new program to supply low-rate loans to banks.
Rumors have been rife in recent days that unnamed European banks were having trouble getting funding from other banks, raising the specter of a replay of the worldwide financial-system freeze in the fall of 2008. That was the trigger for the global recession.
This time the concern is that some banks could suffer ruinous losses on their holdings of government bonds of Greece, Portugal, Spain and other countries if those governments were forced to default on their debts. That risk could make other banks shy away from lending to institutions that could be hit hardest.
Interest rates on short-term loans between banks rose, a usual sign of stress in the system.
Still, analysts said the bank-funding rumors were vague. “You can’t pinpoint any individual institution or even group of institutions,” said Guy Lebas, a fixed-income strategist at brokerage Janney Montgomery in Philadelphia.
But he and other experts said the European Central Bank would have no choice but to act to boost confidence in the banking system.
Many U.S. analysts said the chief fear on Wall Street remained that Europe’s financial crisis would spread and infect the U.S. banking system. U.S. financial stocks in the S&P 500 sold off this week but overall were down less than shares in many other industry sectors, including commodities and heavy-industry.
Optimists could take comfort in the big gain in April employment reported Friday. That could boost confidence that the U.S. economic recovery would roll on, underpinning what has been a remarkable rebound in corporate earnings.
But even some long-time bulls worried about the effects of Thursday’s as-yet-unexplained market mayhem on investor psychology.
Andy Engel, a senior analyst at money manager Leuthold Group in Minneapolis, said his firm remained bullish on stocks. But he said Thursday’s session was likely to enforce the feeling that short-term traders were “taking the game away from investors, and making the market like a casino.”
Rising flows of cash into mutual funds in recent weeks had suggested that “we were just starting to see the public coming back,” Engel said. Now, he said, “People are going to be scared to death again.”
