Wall Street has ended still another highly volatile session today with a big loss as the market's stubborn worries about a protracted downturn...
NEW YORK — Wall Street has ended still another highly volatile session today with a big loss as the market’s stubborn worries about a protracted downturn in the economy and tight credit markets erased gains in the financial sector.
The Street’s back-and-forth trading was typical for a turbulent market that has seen many recent rallies evaporate. The market’s moves came on relatively light volume.
At the close, the Dow was off 203.18, or 2.4 percent, at 8,175.77. It had been up as much as 220 points earlier in the session and was in positive territory until the last half-hour of trading
Broader stock indicators showed more sizable losses. The Standard & Poor’s 500 index fell 27.85, or 3.2 percent, to 848.92, and the Nasdaq composite index fell 46.13, or, 3 percent, to 1,505.90.
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The market’s moves, coming on light volume, appeared tentative as investors remain nervous over the possibility of a global recession. The Street’s back-and-forth was typical for a volatile market that has seen many recent rallies evaporate.
Investors’ guessing about the economy came ahead of possible interest rate moves from central banks, including the Federal Reserve, which is set to begin a two-day meeting Tuesday. The Fed is expected to lower its fed funds rate by a half-point to 1 percent on Wednesday. Investors are also optimistic that the European Central Bank is moving toward its own cut after President Jean-Claude Trichet said today that such a step was “a possibility.”
Policymakers around the world have been trying to find a remedy for the fear of bad debt that has paralyzed parts of the credit markets in the past month. While some signs point to a recent ease in lending conditions, investors are now also worried that a drop-off in lending has damaged the economy.
The U.S. government is taking some of its first steps to steady the banking sector. The Treasury said it signed agreements with nine banks and will buy stock in the companies this week. The proceeds from the stock sales are intended to bolster the banks’ balance sheets so they will begin more normal lending.
“Clearly, what’s most important is that the funding crisis needs to be contained at this point,” said Chris Orndorff, director of equity strategy at Payden & Rygel in Los Angeles.
“The banks need to start taking on some more risks,” he said. “I think it’s going to take months.”
Beyond troubles in the financial sector, Orndorff contends investors are focusing on the outcome of the Fed meeting and any shot of confidence that a rate cut could bring.
Light, sweet crude fell 93 cents to $63.24 per barrel on the New York Mercantile Exchange.
The gyrations in U.S. stocks have been sizable since the market’s peak a year ago, but particularly since last month’s bankruptcy of Lehman Brothers Holdings and the government rescue of insurer American International Group. With investors uncertain about the economy, the market appears to be bouncing along a rocky bottom after falling sharply earlier this month.
Wall Street was cheered today by news that sales of new homes showed an unexpected increase in September. While median home prices have dropped to the lowest level in four years, investors appeared pleased that the market was beginning to chip away at an inventory glut. The Commerce Department reported that sales of new single-family homes rose by 2.7 percent in September to a seasonally adjusted annual rate of 464,000 homes. Economists had expected sales would drop from August.
The median price of a new home declined by 9.1 percent from a year ago to $218,400, its lowest level since September 2004.
Even with several pieces of welcome news, investors around the world remain worried about the prospects for economic expansion. A surge in the yen illustrated investors’ nervousness about how much economic activity could slow. Japan’s Nikkei 225 index dropped to its lowest close in 26 years. The yen is seen as a safe haven holding for investors who contend the Japanese economy will fare better in a global recession.
The ongoing selling is due in part to the belief that a worldwide recession is likely inevitable, but it’s also being triggered by hedge funds and other investors unloading stock because they’re being hit by margin calls. In a margin call, a broker who lent money to an investor calls in the loan, forcing the investor to sell stock to repay the loan.
Greg Church, chief investment officer of Church Capital Management in Yardley, Pa., contends the markets likely will remain volatile as hedge funds and mutual funds step into the market to sell. He also expects that some skittish investors will look to sell their positions as rallies emerge but that the severity of the market’s recent sell-off has left it overdue for a rally, even if it’s only temporary.
“We probably are due for some type of a bounce. Bear market rallies can be beautiful things. I think we could get one of those things sooner than later,” he said.
Investors uneasy about where the market is headed continued to propel demand for the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.74 percent from 3.72 percent late Friday. The dollar was higher against most other major currencies, except the yen, while gold prices rose.
The yield on the three-month bill, regarded as the safest asset around, fell to 0.78 percent from 0.82 percent late Thursday.
A key bank-to-bank lending rate slipped today. The London interbank offered rate, or Libor, on three-month loans in dollars dipped to 3.51 percent from 3.52 percent on Friday. While Libor has fallen steadily for over 10 days as confidence slowly returns to the banking system, investors remain skittish, particularly overseas.
The Nikkei fell 6.4 percent to its lowest level since October 1982, while Hong Kong’s Hang Seng Index tumbled 12.7 percent, its lowest finish in more than four years and its biggest single-session drop since 1991.
Selling spread to Europe. Britain’s FTSE 100 fell 0.79 percent, Germany’s DAX index rose 0.91 percent, and France’s CAC-40 declined 3.96 percent. Stocks in Europe pulled well off their lows after Wall Street sidestepped the steep sell-off that hit Asia and after Trichet raised the prospect of an interest-rate cut.