Stocks plunge for second day
Nervous investors pull out after hopes fade of congressional action on automaker bailout
NEW YORK – Stocks plunged for a second straight day Thursday, falling to levels not seen in at least five years as financial and energy stocks tumbled while demand for the safety of government debt spiked.
Stocks saw the most intense selling late in the session after hopes faded that lawmakers would quickly assemble an aid package for U.S. automakers and as the Standard & Poor’s 500 index broke through lows established in 2002. That breach of a key technical threshold sent a shudder through the market and touched off further selling.
The Standard & Poor’s 500 index fell 6.7 percent to its lowest close since April 1997. The Dow Jones industrial average, meanwhile, fell 445 points, or 5.6 percent, to its lowest close since March 2003. The decline brings the Dow’s two-day drop to 873 points, or 10.6 percent, its worst two-day percentage loss since October 1987.
Financial stocks plunged on worries that the government’s financial rescue won’t be sufficient to cover banks’ losses. Meanwhile, a sharp drop in oil prices weighed heavily on energy companies.
Thursday’s pullback came amid heavy volume, a welcome sign for some investors who are looking for the market to experience a cathartic sell-off that could lay the groundwork for a recovery. Heavier volume can signal investors are scared enough to sell rather than simply sit on the sidelines, which can result in fairly light volume.
Observers said the selling highlighted the entrenched pessimism about the economy’s prospects.
“Unrelenting gloom has taken over the markets,” said Dana Johnson, chief economist at Comerica Inc. “The economic news, the concerns about some major financial institutions, the concerns about the auto sector, earnings reports, everything is coming out in a way that is just provoking a massive selling in the stock market.”
“Back in October we were looking at a potential catastrophic meltdown of the credit markets, and that didn’t happen,” he said. “But that doesn’t mean tremendous damage hasn’t been done to the economy.”
Those worries about the economy sent the Dow down 444.99, or 5.56 percent, to 7,552.29. It was the biggest percentage drop for the blue chips since Oct. 22 and the Dow’s lowest close since March 12, 2003.
Broader stock indicators also showed huge declines. The Standard & Poor’s 500 index fell 54.14, or 6.71 percent, to 752.44, below the closing low of 776.76 logged on Oct. 9, 2002, to its lowest close since April 14, 1997.
The Nasdaq composite index fell 70.30, or 5.07 percent, to 1,316.12.
Jon Biele, head of capital markets at Cowen & Co., said investors are bracing for more bad news.
“The view on the floor is nobody is sure what the next stop is,” he said. “I think the market is expecting another shoe to drop.”
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