Dow's Damage: 13% in Five Days
Dow's Damage: 13% in Five Days
Industrials Lose 508.39 Points, and the S&P Slips Under 1000
By TOM LAURICELLA
Stocks fell for the fifth straight day as traders and investors turned their focus back to troubled financial companies and brushed aside potentially positive news on interest rates from the Federal Reserve.
After gains at the start of the session, stocks turned down steadily around midday. A late-day rout left the Dow Jones Industrial Average 508.39 points, or 5.1%, lower at 9447.11, its lowest close since Sept. 30, 2003.
Trader Bradley Silverman works on the floor of the New York Stock Exchange on Tuesday.
Including Monday's nearly 370-point drop and a 348-point slide last Thursday, the Dow has now shed nearly 13% in the past five trading days, the largest drop since September 2001. The 1403.55-point decline was the Dow's biggest five-day drop ever, and that doesn't include a 778-point drop on Sept. 29. The Dow is now down 33% from its record high reached almost exactly one year ago.
The damage was even worse for the broad Standard & Poor's 500-stock index, which closed Tuesday below the psychologically important 1000 level for the first time since Sept. 30, 2003. The S&P fell 60.66 points Tuesday, or 5.7%, to 996.23. Its 14.6% five-day decline is the biggest since the five days that included the October 1987 stock-market crash and the index stands 21% lower than it was just one month ago.
Despite the declines, traders described the selloff as remarkably orderly and largely free of panicky jettisoning of big positions. Many say that in recent days, the market has been under pressure from small investors who are throwing in the towel after getting quarterly brokerage and mutual-fund statements showing big declines.
Tuesday's selloff came despite hints from Federal Reserve Chairman Ben Bernanke that the Fed could cut interest rates sooner rather than later to help shore up a struggling economy. Indeed, stocks continued to slide as he spoke to the National Association for Business Economics, outlining steps the Fed has taken to shore up the financial system.
The Fed added a potentially potent weapon to its arsenal against the credit crunch Tuesday morning. The central bank said it would for the first time purchase unsecured and asset-backed commercial paper from issuers in an effort to ease the logjam in that important market.
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The move was praised in the credit markets. "This was the medicine we needed," said T.J. Marta, fixed-income strategist at RBC Capital Markets in New York. "Short-term funding has been completely blocked. This is a direct and precise attempt and likely it will be successful in removing that block."
The stock market is acting as if investors wanted the rescue "plans instituted a month ago," said Michael O'Rourke, chief market strategist at brokerage firm BTIG LLC. "The things driving sellers are worries -- not an analysis of where these programs will take us in the next three to six months."
Financial stocks posted declines. Bank of America fell 26% after it reported a big decline in earnings and halved its dividend in advance of pricing of a $10 billion share offering to raise additional capital.
Morgan Stanley shares fell sharply amid rumors of problems with its deal for a capital injection from Japanese bank Mitsubishi UFJ Financial Group Inc. Even after Morgan Stanley issued a statement saying the deal was on track, the stock mustered only a limited recovery and ended the day down 25%.
One problem dogging the stock market is that so-called value investors to a certain degree have been taken out of the game. Many of the biggest and best-known value investors wrongly bet as far back as late last year that stocks had fallen too far -- especially financials -- and bought shares. These fund managers are now facing withdrawals by angry investors who are suffering big losses.
As a result, value managers are forced to sell, instead of sweeping in to buy beaten-down stocks.
Write to Tom Lauricella at email@example.com