November 21, 2008 in Business

Stocks plunge for second day

Nervous investors pull out after hopes fade of congressional action on automaker bailout
By TIM PARADIS and SARA LEPRO Associated Press
 
Associated Press photo

Traders work on the floor of the New York Stock Exchange on Thursday. Stocks have plunged to levels not seen in five years.
(Full-size photo)

Bond prices on the rise

Bond prices showed stunning advances as investors clamored for the safety of government debt, sending Treasury yields to multiyear lows as fears about the auto industry make it hard for credit markets to function. The yield on the benchmark 10-year Treasury note sank to 3 percent, its lowest level since June 2003. The 30-year bond’s yield fell to 3.46 percent – the lowest since the government started issuing the bond in 1977. The yield on the 2-year note, meanwhile, fell to 0.97 percent – the lowest since 1947, according to Global Financial Data in Los Angeles.

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.”

© Copyright 2008 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Get stories like this in a free daily email


Please keep it civil. Don't post comments that are obscene, defamatory, threatening, off-topic, an infringement of copyright or an invasion of privacy. Read our forum standards and community guidelines.

You must be logged in to post comments. Please log in here or click the comment box below for options.

comments powered by Disqus