A runaway train of a sell-off turned the anniversary of the stock-market peak into one of the worst days in Wall Street history Thursday...
NEW YORK — A runaway train of a sell-off turned the anniversary of the stock-market peak into one of the worst days in Wall Street history Thursday, driving the Dow Jones industrials down a breathtaking 679 points and deepening a financial crisis that has defied all efforts to stop it.
Stocks lost more than 7 percent, $872 billion of investments evaporated, and the Dow fell to 8,579. When the average crashed through the 9,000 level for the first time in five years in the final hour of trading, sellers had only begun to hit the gas pedal.
As bad as the day was, even worse was the cumulative effect of a historic run of declines: The Dow suffered a triple-digit loss for the sixth day in a row, a first, and the average dropped for the seventh day in a row, a losing streak not seen since 2002.
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“Right now the market is just panicked,” said David Wyss, chief economist at Standard & Poor’s in New York. “Nobody wants to take on any risk. Everybody just wants to get their money and put it under the mattress.”
It all took place one year to the day after the Dow closed at its record high of 14,164. Since then, frozen credit, record foreclosures, cascading job losses and outright fear have seized the market and sapped 39 percent of its value.
Paper losses for the year add up to an staggering $8.3 trillion, according to preliminary figures measured by the Dow Jones Wilshire 5000 composite index, which tracks 5,000 U.S.-based companies representing almost all stocks traded in America.
It was the second straight day Wall Street was rocked by a final-hour sell-off, but this one was particularly shocking.
Most of the day was relatively calm, and the trading floor was quieter than usual because of the Jewish holiday of Yom Kippur.
Wall Street awoke to news the federal government was brandishing a new weapon against the financial crisis — considering seeking an equity stake in major U.S. banks in order to stabilize them.
But that step appeared as ineffectual as the others Washington has rolled out in recent weeks, including a $700 billion bailout of the financial industry, a coordinated interest-rate cut by central banks around the world and direct lending by the Federal Reserve to private companies to provide them with short-term cash.
Acquiring a stake in the banks would be yet another startling intervention by the government in the free market.
But economists said President Bush was left with little choice because of the credit markets, where tight lending has choked off the everyday cash that is the lifeblood of the economy.
“In normal times, this would be out of the question, but in the present dire situation, I think the government should be employing all the powers that it can,” said Sung Won Sohn, an economics professor at California State University, Channel Islands.
After the closing bell, shellshocked traders and bankers gathered at Bobby Van’s Steakhouse and downed beers and drinks to chase the ghastly numbers. One Wall Streeter joked things had gotten so bad that he should apply for a job as a waiter.
“It was an ugly day, there’s no ways to put it,” said another customer, Alan Valdes, director of floor operations for Hallard, Lyons. “Guys were frustrated, just fed up. We’re in an area no one has been in since 1930.”
Wall Street has been teetering on the brink of panic for a month now, vulnerable to any bad news.
Thursday’s sell-off was triggered when a major credit-rating agency put General Motors and its finance affiliate under review to determine whether it should be downgraded.
Stock in GM, one of the 30 components of the Dow Jones industrials, lost 31 percent of its value and closed at $4.76, its lowest in more than half a century, since the Korean War began.
For the Dow, it has been nothing short of a free-fall:
• The average is down 2,338 points, or 21 percent, in the last four weeks, since the Lehman Brothers bankruptcy escalated a long-running credit crunch into a full-fledged crisis.
• The point decline Thursday was the third-worst in Dow history. The worst, 778 points, came less than two weeks ago.
• Of the last 19 trading days, there have been 11 triple-digit losses — including the unprecedented six straight. The six gains have all been triple digits, and only one was enough to make up the losses of the day before.
• The Dow stands about 1,300 points above its lowest close of the bear market that followed 9/11. In a market as volatile as this, that gap can be closed in a couple of trading days, or less.
In fact, triple-digit declines can happen almost in an instant.
On Thursday, the Dow was above 9,200 after 10:30 a.m. PDT and still above 9,000 after noon PDT. The pressure to sell was so intense that the Dow kept dropping precipitously for 10 minutes after the 1 p.m. PDT closing bell as the losses were tabulated.
In percentage terms, the drop exceeded the day the markets reopened after the Sept. 11, 2001, attacks. It was not close to the 22.6-percent decline on Black Monday in 1987, the last stock crash.
The broader stock indicators registered similar declines to the Dow’s. The Standard & Poor’s 500 index fell 7.6 percent to the 909 level, and the Nasdaq composite index fell 5.5 percent to 1,645.
Meanwhile, the credit markets remained stubbornly locked up. The benchmark rate that banks charge each other for loans, known as Libor, rose to 4.75 percent from 4.52 percent a day earlier, signaling banks are still afraid to make loans because they worry they won’t be paid back.
Adding to Wall Street’s nervousness, a ban on short selling — when investors borrow shares of stock and bet the value will fall — expired.
“The story is getting to be like that movie ‘Groundhog Day,’ ” said Arthur Hogan, chief market analyst at Jefferies & Co.
“Everything we’re seeing is historic,” he said. “The problem is historic, the solutions are historic, and unfortunately, the sell-off is historic. It’s not the kind of history you want to be making.”