Dollar woes sink stocks
NEW YORK – Wall Street suffered its second big drop in a week Wednesday, with investors worried about spreading fallout from the credit crisis at banks and about a dollar that just keeps getting weaker. The Dow Jones industrial average fell more than 360 points – just about matching its pullback of last Thursday.
A passel of worries tormented investors, including comments by New York Attorney General Andrew Cuomo about conflicts of interest in the mortgage industry that exacerbated declines among bank stocks.
Meanwhile, the dollar swooned amid speculation that China will seek to diversify some of its foreign currency stockpiles beyond the greenback and General Motors Corp. further dampened sentiment by posting a record loss tied to an accounting adjustment.
Oil hit a record, rising above $98 per barrel before retreating, and gold pushed higher, moves compounded by an anemic dollar.
The fear with a huge drop like Wednesday’s is whether it is part not just of a correction, which is a 10 percent pullback in stock prices, but that it could be the beginning of a bear market. With the huge volatility that has swept Wall Street since the summer, and triple-digit moves in the Dow becoming commonplace, no one can be sure.
Still, the concern on the Street is that the extent of the fallout from the credit market crisis that has led to billions of dollars in losses for major banks and investment firms is not yet known. With Citigroup Inc. announcing Sunday it needed to take an additional $8 billion to $11 billion in writedowns, investors are very uneasy not just about stocks, but the economy as a whole.
“The financials are the bodyguards of the market and when the bodyguards are taking shots then the market can’t do well,” said David Darst, chief investment strategist for Morgan Stanley’s global wealth management group.
“A lot of the bad stuff is known; what the markets are worrying about is the unknown,” Darst said.
The Dow fell 360.92, or 2.64 percent, to 13,300.02. The Dow, which had gained 117 points on Tuesday, had fallen 362.14 last Thursday, reflecting the extreme fractiousness on Wall Street these days. It was the third time in a month the blue chip index has dropped by more than 350 points, and leaves the Dow up 6.71 percent for the year.
Overseas, Japan’s Nikkei stock average closed down 0.94 percent. Britain’s FTSE 100 fell 0.85 percent, Germany’s DAX index fell 0.35 percent, and France’s CAC-40 fell 0.46 percent.