Dow ends below 10,000 for first time since ‘04

by Associated Press

Tuesday, October 7, 2008 00:40

NEW YORK — After a breathtaking plunge that took the Dow Jones industrial average down 800 points — its biggest drop ever during a trading day — ending with a loss of 370 didn’t seem so bad.

Wall Street managed a big afternoon rally Monday in yet another day of extreme volatility and worldwide worries about the financial crisis and stubborn credit, even after the $700 billion U.S. bailout.

Still, the Dow finished below 10,000 for the first time since 2004 and lost more than 3 1/2 percent for the day, and there were no signs fear and unpredictability were leaving the stock market any time soon.

The Dow’s low came just before the last hour of trading, and the decline was an ominous sign for investors who worried the market would tip even lower in the final stretch of the day. Late-day sell-offs are seen as a sign of fleeting confidence.

At its worst point, the Dow was down 800.06, an intraday record. The stock market rallied during the final 90 minutes of the trading day, and the Dow finished down about 370 points at 9,955.50.

The average is down almost 30 percent from its all-time high of 14,164.53, set a year ago Thursday.

Speculation among traders that Wall Street’s pullback had been severe enough to force the Federal Reserve into taking other steps to soothe the markets helped stocks rebound from their lows.

“If you can’t say that we’re oversold now, I don’t know what you say. You’re at least due for a bounce if nothing else,” said Bill Stone, chief investment strategist for PNC Wealth Management.

The day’s decline came despite the $700 billion U.S. government bailout package, which was signed into law Friday after two weeks during which traders had appeared to count on the rescue as their only hope to avoid a market meltdown.

But investors overseas weren’t necessarily convinced. In Japan, the Nikkei average lost more than 4 percent. And then the losses spread across Europe — nearly 6 percent for the FTSE-100 in Britain, 7 percent for the German DAX and more than 9 percent for France’s CAC-40.

In the U.S., President Bush twice made unscheduled remarks on the economy, saying in Cincinnati the economy would be “just fine” but that the bailout package needed time to work.

The troubles that started with an overheated housing market in the U.S. have infected financial markets around the world, making banks fearful of lending to other banks, let alone to businesses and consumers. That has led to worries that economies around the world might not only sputter but slide into reverse.

The crush of selling Monday came exactly one week after the Dow lost 778 points, its biggest closing loss in terms of points. On that day, the House voted down an earlier bailout package that had appeared to be a safe bet to pass.

The swings in the Dow on Monday also marked the beginning of a fourth week of tumult in the markets. Triple-digit Dow swings have been commonplace since mid-September, when investment house Lehman Brothers went bankrupt and the government stepped in to bail out insurer American International Group.

But even with the bailout package firmly in place — a plan under which the federal government will buy bad mortgage-related assets off the books of banks — investors remain worried banks are too fearful to lend and are cutting off air to the economy.

Over the weekend, governments across Europe rushed to prop up failing banks, while the governments of Germany, Ireland and Greece also said they would guarantee bank deposits. U.S. investors appeared worried the bailout would not be enough to jumpstart the economy. Even other steps, including a Federal Reserve decision to expand a loan program to squeezed banks, didn’t help much.

The sharp one-day tumbles over the last two Mondays don’t come close to the drops that became black marks on the timeline of Wall Street history. Black Monday, in October 1987, and stock drops that preceded the Great Depression were more than 20 percent. Monday’s drop, by comparisons, was less than 8 percent at its worst.

For the day, the Dow lost 3.6 percent. The selling was broad: Little more than 200 stocks finished the day higher on the New York Stock Exchange, while about 3,000 finished lower.

At its lowest point Monday, the Dow stood at 9,525.32. The benchmark average dipped below 10,000 for the first time since Oct. 29, 2004, and closed there despite the afternoon rally.

As an indication of how fearful investors still are, government-backed debt was in high demand. The yield on the three-month Treasury bill, which moves in the opposite direction as its price, fell to 0.43 percent from late Friday at 0.50 percent. Investors are willing to accept low returns to have their money in a secure place.

Broader indexes also plunged. The Standard & Poor’s 500 Index shed 42.34, or 3.85 percent, to 1,056.89; and the Nasdaq Composite Index fell 84.43, or 4.34 percent, to 1,862.96. The Russell 2000 Index of smaller companies dropped 23.49, or 3.79 percent, to 595.91.

The market “is displaying one of its worst traits with a herd mentality, and investors have an appetite for feeding on fear,” said Anthony Sabino, a professor of law and business at St. John’s University.

But he cautioned it was still not a nightmare scenario.

“Most certainly, this is not the Great Depression of the 1930s, but (is like) the savings and loan crisis of the 1980s — and we bailed them out,” he said. “Once people catch their breath, they’ll see this is the proper analogy and this will breathe life back into banking institutions.”