Wall Street's anxiety about Detroit automakers welled up in late trading today, sending stocks sharply lower as investors questioned whether a bill to rescue the companies would pass the Senate.
NEW YORK — Wall Street’s anxiety about Detroit automakers welled up in late trading today, sending stocks sharply lower as investors questioned whether a bill to rescue the companies would pass the Senate.
The Dow Jones industrial average closed off 196.33, or 2.2 percent, at 8,565.09. The Standard & Poor’s 500 index was down 25.65, or 2.9 percent, at 873.59, and the technology-heavy Nasdaq composite index was down 57.60, or 3.7 percent, at 1,507.88.
Prospects for the $14 billion of loans to cash-starved General Motors and Chrysler dimmed as opposition from both parties increased.
Those opposed are arguing that any support for the domestic auto industry should carry significant concessions from autoworkers and creditors and reject tougher environmental rules imposed by House Democrats. The House approved the plan late Wednesday on a 237-170 vote to infuse money within days to the two struggling automakers. Ford Motor has said it does not need aid.
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“If this doesn’t pass, the market would show it wasn’t happy with that,” said Neil Massa, trader at MFC Global Investment Management. “There would just be many more people unemployed that would be a drain on society instead of a contribution, and that’s never a good thing considering we’re in a recession. I can’t imagine they’d let that happen.”
The heads of the three automakers said that even one of the companies going into bankruptcy would slam an already battered economy with thousands of job losses. Meanwhile, the government said today that initial claims for unemployment insurance jumped to a 26-year high last week.
While investors waited for further news on the automakers, they sold shares of financial, technology and consumer companies and followed rising oil prices by moving into the energy sector, following the strategy they took during Wednesday’s session.
“What’s going to happen in the Senate is really weighing on the market in a big way,” said Robert Froehlich, chief investment strategist for DWS Investments. He contends that a failure of the auto bailout would trigger a sell-off similar to what occurred when a financial sector rescue plan didn’t make it out of Congress on the first try. The Dow Jones industrials tumbled 777 points on Sept. 29 as the plan failed an initial House vote.
Declining issues on the New York Stock Exchange outnumbered advancers by more than 3 to 1. Trading volume was light, which can exacerbate the market’s swings.
Stocks rose Wednesday, with the Dow adding 70 points, after a surge in gold and other commodities prices gave investors reason to snap up energy and materials stocks.
Wall Street remains on edge, as was clear by today’s late-day pullback, but trading has been generally more orderly since the S&P 500 and the Dow hit multiyear lows on Nov. 20. Even some big moves in stocks in recent weeks don’t compare with the enormous swings in September and October.
One measure of unease in the market is still elevated but well off its highs. The Chicago Board Options Exchange Volatility Index, known as the VIX, is at 56. Ordinarily what’s known as Wall Street’s fear gauge might be in the 20s and 30s but it had been near 90 in October.
Ed Hyland, global investment specialist for J.P. Morgan’s Private Bank, said investors are hoping the government’s medicine, from interest rate cuts to financial infusions in banks, will eventually help lift the economy but that it remain unclear how soon the economy will recover.
“There is still a high degree of uncertainty out there,” he said. “All you have to do is look at the Treasury market to get a gauge of how much fear there is in the overall investment community.”
In the Treasury market, the yield on the three-month T-bill rose to 0.05 percent from 0.02 percent late Wednesday. The low yield still indicates a high degree of investor unease. The yield on the benchmark 10-year Treasury note, which also moves opposite its price, fell to 2.66 percent from 2.69 percent late Wednesday.
The one-month T-bill’s yield was at 0.01 percent, down from 0.04 percent late Wednesday. It was auctioned on Tuesday with a yield of zero percent, a sign that institutional and foreign investors were so eager to preserve principal they were willing to forgo interest.
The dollar was mostly lower against most other major currencies, while gold rose.
Oil prices advanced as the dollar weakened and as investors hoped for a significant OPEC production cut next week to boost the market. Light, sweet crude jumped $3.75 to $47.27 a barrel on the New York Mercantile Exchange.
Overseas, Japan’s Nikkei 225 added 0.70 percent. Britain’s FTSE-100 rose 0.49 percent, Germany’s DAX slipped 0.78 percent, and France’s CAC-40 fell 0.43 percent.