More unstoppable selling on Wall Street takes Dow to lowest point since 1997
A relentless sell-off in the stock market Monday blew through barriers that would have been unthinkable just weeks ago, and investors warned there was no reason to believe buyers will return anytime soon.
The Dow Jones industrial average plummeted below 7,000 at the opening bell and kept driving lower all day, finishing at 6,763 — a loss of nearly 300 points. Each of the 30 stocks in the index lost value for the day.
And the Standard & Poor’s 500 stock index, a much broader measure of the market’s health, dipped below the psychologically important 700 level before closing just above it. It hadn’t traded below 700 since October 1996.
Investors were worried anew about the stability of the financial system after insurer American International Group posted a staggering $62 billion loss for the fourth quarter, the biggest in U.S. corporate history — and accepted an expanded bailout from the government.
But beyond daily headlines, Wall Street seems to have given up the search for a reason to believe that the worst is over and the time is ripe to buy again.
“As bad as things are, they can still get worse, and get a lotworse,” said Bill Strazzullo, chief market strategist for Bell CurveTrading, who said he believes the Dow might fall to 5,000 and theS&P to 500.
The Dow’s descent has been breathtaking. It tookonly 14 trading sessions for the average to fall from above 8,000 tobelow 7,000. For the year, the Dow has lost 23 percent of its value.
Itslast close below 7,000 was May 1, 1997 — a time when the market wasbarreling to one record high after another because of the boom intechnology stocks, but often suffered big drops as investors worriedabout inflation and rising interest rates.
This time around, WallStreet analysts seem to believe that a stock market recovery will firstrequire signs of health among financial companies, and on Monday thosesigns seemed further away than ever.
AIG, whose reach is so vastthat the government warns letting it fail would cripple the very worldfinancial system, will get another $30 billion in loans on top of the$150 billion already invested by the government.
HSBC PLC,Europe’s largest bank by market value, said it needs to raise about $18billion, reported a 70 percent drop in earnings for last year, andannounced plans to scale back U.S. lending and cut 6,100 jobs.
Thebanking sector helped drive the market lower. Citigroup stock lost 20percent of its value and fell to a paltry $1.20 per share. HSBC lost 19percent. Bank of America lost 8 percent.
While the root of theproblem for the financial firms is the bad bets they made on mortgagesand mortgage-backed securities, now the recession is exacerbating theirproblems, forcing job cuts.
“The economy definitely hasdeteriorated since November,” said Sean Simko, head of fixed incomemanagement at SEI Investments. “It’s just the fact that we haven’t seensigns of improving or stabilizing, per se, which is adding to themorass of the market.”
Mixed economic readings provided littlereason to expect a turnaround. Personal spending and incomes both rosefor January, but construction spending fell 3.3 percent, more thantwice what economists expected.
And coming later this week ismuch bigger, and more unnerving, data. The government on Friday willreport the national unemployment rate and job losses for February.Those figures have been worse month after month.
So far, theeconomic readings and news coming out of financial companies are stillso alarming that investors feel no alternative but to sell.
“Idon’t think we find a bottom in the market until we see some sort ofincreased level of optimism and confidence among consumers andinvestors,” said Jim Baird, chief investment strategist at Plante MoranFinancial Advisors.
Both the Dow and the S&P have lost morethan half their value since the market peaked in October 2007. In thattime, about $11 trillion in wealth has vanished, according to the DowJones Wilshire 5000 index, which tracks nearly all stocks traded inAmerica.
Last week, the Dow and the S&P 500 fell below thelevels they had reached Nov. 20 and 21 — to that point their lowestsince Lehman Brothers imploded in September and set off the financialmeltdown.
Investors had hoped those levels might mark a market bottom, but it hasn’t happened.
Big-nameinvestors are just as cautious. Billionaire Warren Buffett predicted inhis annual letter to investors Saturday that “the economy will be inshambles throughout 2009 — and, for that matter, probably wellbeyond.” He cautioned that did not determine whether the market wouldrise or fall.
And even when the market finally reaches a bottom, it probably faces a long, long recovery.
“Wedo feel that things can improve, but it is going to be years before weget back to levels we saw in the markets a year ago,” said DavidChalupnik, head of equities at First American Funds.
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
The greatest enemy of knowledge is not ignorance…it is the illusion of knowledge.