Stocks plunge on credit fears
NEW YORK – Wall Street’s deepening fears about a spreading credit crunch sent stocks plunging again Thursday, with the Dow Jones industrials extending their series of triple-digit swings and falling more than 380 points. The catalyst for the market’s latest skid: a French bank’s announcement that it was freezing three funds that invested in U.S. subprime mortgages.
The announcement by BNP Paribas raised the specter of a widening impact of U.S. credit market problems. The idea that anyone – institutions, investors, companies, individuals – can’t get money when they need it unnerved a stock market that has suffered through weeks of volatility triggered by concerns about tight credit and bad subprime mortgages.
The Dow fell 387.18, or 2.83 percent, to 13,270.68.
Thursday’s pullback continued an erratic pattern of triple-digit moves in the Dow since the index closed at a record 14,001.41 on July 19. Eleven of the 15 ensuing sessions have ended in a triple-digit gain or loss. Gains have been evaporating at the first mention of trouble in housing, subprime lending or the credit markets.
With Thursday’s decline, the Dow is about 730 points, or 5.2 percent, below its record close. Some experts have been calling for a textbook correction – a pullback of at least 10 percent. At its lowest close since the market’s high, Friday’s finish of 13,181.91, the Dow was 5.85 percent below the record.
Bonds rose sharply as investors again sought the relative safety of Treasurys, pushing down the yield on the benchmark 10-year note to 4.79 percent from 4.89 percent late Wednesday.
The broader Standard & Poor’s 500 index fell 44.40, or 2.96 percent, to 1,453.09.
Before Thursday, the S&P had its best three-day winning streak in nearly five years. But the latest pullback was the biggest point drop and percentage loss for both the Dow and the S&P since a market pullback Feb. 27 that owed in part to concerns about subprime loans.
The Nasdaq composite index fell 56.49, or 2.16 percent, to 2,556.49. On Wednesday, it posted its biggest point gain in more than year. And while Thursday’s loss was sharp, last Friday’s was more severe.
Despite Thursday’s slide, the major stock market indexes are still up for the week, given that stocks rose sharply the first three sessions of the week.
The pullback came after BNP Paribas Investment Partners said it was suspending three funds together worth about $3.79 billion and wouldn’t make investor redemptions until it could determine net asset values.
The funds invest in part in subprime mortgages through a process known as securitization. Investment banks bundle together mortgages – including those from subprime borrowers – and sell them off to investors such as hedge funds, mutual funds and other institutional investors. Buyers of such securities are seeking the steady flow of income from homeowners making their mortgage payments.
“It just kind of brought the fear back,” said Douglas Peta, market strategist at J.& W. Seligman in New York.
“In the last couple of days I think people maybe thought that an all-clear had been sounded,” he said referring to some of the subprime loan concerns.
“This just highlights that there is not going to be an immediate resolution,” he said of the companies that are trying to determine their exposure to bad subprime loans.
Shares of financial companies, which investors have fled recently amid lending concerns, took another beating Thursday. Citigroup Inc. fell 5 percent, as did fellow Dow component JPMorgan Chase & Co.
The dollar was mixed against other major currencies, while gold prices fell. Light, sweet crude fell 56 cents to $71.59 per barrel on the New York Mercantile Exchange.
Declining issues outnumbered advancers by about 4 to 1 on the New York Stock Exchange, where volume came to 2.8 billion shares compared with 2.6 billion shares traded Wednesday.
The Russell 2000 index of smaller companies fell 10.79, or 1.36 percent, to 784.87.
The Chicago Board Options Exchange’s volatility index, often called the “fear index,” rose Thursday to its highest level since April 2003.
European stocks plunged. Britain’s FTSE 100 lost 1.92 percent, Germany’s DAX index fell 2.00 percent, and France’s CAC-40 fell 2.17 percent.