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Stocks suffered their worst losses since the Sept. 11, 2001, terror attacks, prompted by a huge sell-off in China's stock market, higher oil prices and some disappointing economic news.
The Dow Jones industrials, briefly down as much as 545 points, finished the day off 416 points, or nearly 3.3%, to 12,217. The Nasdaq Composite Index plunged more than 96 points, or 3.9%, to 2,408, and the Standard & Poor's 500 Index tumbled about 50 points, 3.47%, to just under 1,400, its lowest level in nearly three months.
The U.S. market may well face more turmoil tomorrow. In mid-morning trading in Tokyo on Wednesday, the benchmark Nikkei 225 index was down 606 points, 3.4%, to 17,534.
The market decline wiped out all of the year's gains for the Dow, the S&P 500 and the Nasdaq. The Dow is now down 2% for the year; the S&P 500 is down 1.4%. The Nasdaq is off 0.3%; a week ago it had been up 4.5%.
The sell-off was compounded when computers controlling orders to the New York Stock Exchange couldn't keep up with the record volume. The computers used to tabulate the Dow also couldn't keep up.
The declines were the largest for the major averages since markets reopened on Sept. 17, 2001, after the terror attacks on the twin towers of the World Trade Center and the Pentagon. That day, the Dow fell nearly 685 points, the S&P plunged nearly 54 points, and the Nasdaq sank 116 points.
Today's Dow's loss was also the biggest percentage decline since the index fell 3.67% on March 24, 2003 -- just before the United States invaded Iraq.
The selling produced the biggest volume ever on the New York Stock Exchange -- about 2.3 billion shares. Down volume on the NYSE was 2.2 billion shares. Volume on Nasdaq hit a record 2.78 billion shares.
All 30 stocks in the Dow were lower, along with 498 stocks in the S&P 500. The only winners: RadioShack (RSH, news, msgs), up nearly 12% to $25.13, and Questar (STR, news, msgs), up 1.44% to $82.95.
Walt Disney (DIS, news, msgs) was the Dow's biggest loser, down nearly 5.7% to $32.05. The Dow stock that declined least was General Electric (GE, news, msgs), down 1.9% at $34.66.
The sell-off was more than China
The big sell-off in China was started the day's selling, but it was just one of several forces that combined to hit the markets:- An overbought stock market. The stock market had gone more than four and a half years without a correction of 10% or more. Plus some sectors, especially materials, had enjoyed huge gains and were ripe for profit taking. Gold and copper stocks were hit very hard. Freeport-McMoRan Copper and Gold (FCX, news, msgs) fell nearly 10% to $55.75. Rio Tinto (RTP, news, msgs), the global mining giant, was down 6.7% to $215.13.
- Higher oil prices. Crude oil jumped 32 cents a barrel to $61.46. So far in February, crude is up 5.44% after a big sell-off in January. The Dow Jones Transportation Index ($TRAN) fell 3.4% today and has fallen more than 6% since hitting a record 5,178 a week ago.
- Concern about housing and subprime lenders. Traders are obsessed about how deep the housing slump that began last year will go and how vulnerable lenders are if large numbers of mortgages go bad. One result: Big brokers and banks have been pummeled. Goldman Sachs (GS, news, msgs) fell 6.7% to $199.76 today. Lehman Bros. (LEH, news, msgs) was off 4.7% to $74.19. The Amex Securities Broker/Dealer Index ($XBD.X) fell 4.4%.
- Alan Greenspan. The former Federal Reserve Chairman said yesterday that the U.S. economy faced a risk of a recession later this year. "When you get this far away from a recession, invariably forces build up for the next recession, and indeed we are beginning to see that sign," Greenspan said via satellite link to a business conference in Hong Kong. Greenspan didn't say a recession was imminent, but traders didn't care.
Stock Charts (Year)
Boeing
Nordstrom
- Disappointing economic news. Here the culprit was a report that new orders for durable goods plunged 7.8% in January, more than the 5.5% drop expected by economists. Durable goods rose a revised 2.8% in December. A big drop in airplane orders at Boeing (BA, news, msgs) was the biggest contributor, but even without Boeing, orders had fallen 3.1% last month, the biggest drop since July 2005. Boeing was off 1.9% today.
- Disappointing results from some key retailers. In this case, blame Nordstrom (JWN, news, msgs), the upscale chain, which offered guidance about first-quarter earnings that were lower than Wall Street was expecting. The stock was down 7.6% today to $52.30.
- Video: What's ahead for tomorrow?
Is this the correction?
It could be, and it has been long expected by many on Wall Street. Yet, technically the market is slightly less than halfway to a correction, which is defined as a pullback of 10% in a major average.The Dow has now fallen nearly 4.5% since hitting a closing high of 12,786.64 on Feb. 20. At the time, it was up more than 19% from lows of last July.
The Nasdaq jumped nearly 24% to 2,524.94 last Thursday from its July lows. It's is down 4.6% since.
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The Dow had its fifth straight loss, the longest losing streak since it fell every day for six sessions between Oct. 27 and Nov. 3, 2006.
Huge volume disrupts the markets
The day's selling was accelerated by a huge wave of computerized trading that sold stocks and pushed money to the relative safety of bonds. The 10-year Treasury index yield fell from 4.6% to 4.5%.The Dow shed 200 points in about two minutes. Bargain hunters began pouring money into the market and cutting a 500-point loss to 400 points within minutes.
What caused the huge and fast drop, The Wall Street Journal said, was a computational glitch in the computers that Dow Jones & Co. uses to track the Dow.
In addition, the New York Stock Exchange said that trading was disrupted by "intermittent technical problems" toward the end of the day. Most traders translated that to mean the exchange's computers were overwhelmed by the volume of trading, and there were fears the problems would spill over into tomorrow's trading.
Today's decline began with a decline in China that startled investors, leading to declines of about 3% in indexes in both France and Germany. A suicide bombing attack at the main U.S. military base in Afghanistan just as Vice President Dick Cheney was visiting also rattled markets.
| Tues. | Mon. | Chg. | Month chg. | YTD chg. | |
|---|---|---|---|---|---|
| Crude oil (NYMEX) (per barrel) | $61.46 | $61.39 | $0.07 | 5.44% | 0.67% |
| Heating oil (per gallon) | $1.7793 | $1.7793 | $0.0231 | 5.98% | 11.35% |
| Natural gas (per million BTU) | $7.5330 | $7.7547 | -$0.2217 | -2.13% | 19.59% |
| Unleaded gasoline (per gallon) | $1.8161 | $1.7777 | $0.0384 | 16.46% | 13.36% |
A bid to curb speculation slams Chinese stocks
The battering that U.S. stocks took today started with a crash in China, the Shanghai Composite Index fell nearly 9% today, just a day after hitting a new high and bringing its gains for the year to 14%.The selling was prompted by fears that authorities would crack down on speculation that has propelled shares. The market soared 130% last year, making it the world's best-performing major market.
- Video: The China syndrome
"This kind of terrifying fall means the market has become abnormal," analyst Chen Huiqin at Huatai Securities told Reuters, adding that shares could take a while to stabilize even if negative rumors about government policy proved false.
The market was hit by several negative rumors in late trade, including talk that authorities would take strong steps to cool speculative activity, Reuters reported.
The Chinese government announced on Sunday that it had set up a top-level task force to clamp down on illegal securities trading. Authorities had already signaled that another crackdown was coming, and it isn't clear how harsh it will be.
There was talk of an imminent interest rate increase after poor inflation data in the past two months. The central bank raised bank reserve requirements on Sunday.
"Anything that challenges the abundance of global liquidity is a matter of concern," Luca Sega, a money manager for Aperta Sgr in Milan, told Bloomberg News. "The Chinese government seems to be on the case of stopping the investment boom, and we could see some serious repercussions if other countries move in that direction."
A market slump in China shouldn't be a surprise. "Markets get ahead of themselves, and you do have to have a correction at some point," Allen Sinai of Decision Economics told CNBC. "The U.S. data softness is part of the U.S. correction. I wouldn't be surprised to see the U.S. equity market correct some more."
Separately, Wal-Mart Stores (WMT, news, msgs) said it was buying a stake in Trust-Mart, a Taiwanese-owned retailer that operates in China. The U.S. retail giant said it would buy a 35% stake. Wal-Mart was off 3.6% to $48.20.
| Tues. | Mon. | Chg. | Month chg. | YTD chg. | |
|---|---|---|---|---|---|
| Treasurys | |||||
| 13-week Treasury bill | 5.045% | 5.040% | 0.005 | 1.41% | 3.28% |
| 5-year Treasury note yield | 4.475% | 4.614% | -0.139 | -7.14% | -4.81% |
| 10-year Treasury note yield | 4.513% | 4.631% | -0.118 | -6.49% | -4.18% |
| 30-year Treasury bond yield | 4.630% | 4.733% | -0.103 | -6.01% | -3.90% |
| Currencies | |||||
| U.S. Dollar Index | 83.38 | 83.84 | -0.46 | -1.26% | -0.06% |
| British pound in dollars | $1.965 | $1.963 | 0.002 | -0.02% | 0.26% |
| Dollar in British pounds | £0.509 | £0.510 | -0.001 | 0.02% | -0.25% |
| Euro in dollars | 1.324 | 1.325 | -0.001 | 1.62% | 0.33% |
| Dollar in euros | € 0.7551 | € 0.7545 | 0.001 | -1.64% | -0.33% |
| Dollar in yen | ¥118.39 | ¥117.91 | 0.48 | -2.07% | -0.53% |
| Commodities | |||||
| Gold | $687.20 | $689.80 | -$2.60 | 4.59% | 7.71% |
| Copper | $2.8250 | $2.8700 | -$0.04 | 8.03% | -1.60% |
| Silver | $14.6900 | $14.8320 | -$0.14 | 8.66% | 13.57% |
| Crude oil (NYMEX) (per barrel) | $61.46 | $61.39 | $0.07 | 5.44% | 0.67% |
Toyota moves in to Elvis' neighborhood
Toyota Motor (TM, news, msgs) has chosen Blue Springs, Miss., as the location for its eighth North American plant. The $830 million Highlander sport-utility-vehicle plant is just outside of Tupelo, Miss., best known as Elvis Presley's birthplace.Toyota's expansion in North America comes as U.S. auto makers like General Motors (GM, news, msgs), Ford Motor (F, news, msgs) and DaimlerChrysler (DCX, news, msgs) have announced massive restructuring plans. Toyota's sales in the United States jumped 13% to $2.54 million last year as it inched closer to GM, the nation's biggest auto maker. Toyota could surpass GM this year.
Toyota fell nearly 3% to $132.97 in New York. Ford was down 5.8% to $7.78. Daimler Chrysler was off 4.6% to $67.30. GM was down 5.3% to $32.16.
Federated: Call me Macy's
The management of Federated Department Stores (FD, news, msgs) wants to change the company's name. The retailer said a vote on changing its name to Macy's Group will occur at the company's annual meeting May 18. If approved, the name change will go into effect June 1."We're no longer a federation of retail stores; Macy's is 90% of our business," CEO Terry Lundgren told CNBC today.
The company that operates Macy's and Bloomingdale's also said it earned $733 million, or $1.40 per share, in the fourth quarter, above the $699 million, or $1.26 per share, it earned a year earlier. Excluding items for integrating the May stores, earnings were $1.66 per share, above analysts' estimate of $1.58 per share.
Federated's revenue fell to $9.16 billion from $9.57 billion a year ago.
The stock was down 1.9% on the day to $43.35.
- Video: More on Federated's earnings and its name-change plans
RadioShack shines
RadioShack said fourth-quarter profit rose 64%, thanks in part to savings from store closings and job cuts. "They did a phenomenal job on the cost-cutting," Rick Weinhart, an analyst with BMO Capital Markets, told Bloomberg News. "It looks like the first stage of the turnaround has been pretty successful."Shares rose nearly 12%, to $25.13 on the day.
Net income came in at $84.5 million, or 62 cents per share, well above the 43 cents analysts had expected.
Xerox lowers guidance
Xerox (XRX, news, msgs) shares fell 3.8% to 17.23 today after the copying giant said it was lowering its first-quarter guidance to make up for restructuring charges at Fuji Xerox; Xerox has a 25% stake in Fuji Xerox.Xerox said it now expects earnings of 18 to 20 cents per share, down from an earlier forecast of 21 to 23 cents per share.
By Charley Blaine and Elizabeth Strott
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