Stocks pare losses after the Dow flirted with 11-year lows
NEW YORK -- The stock plunge continued on Wall Street Friday as investors worried about the fate of the nation's ailing banking system and battered economy drove the broad stock market temporarily to fresh bear market lows — and the Dow to its lowest level since October 1997.
But stocks pared their losses in afternoon trading after the White House sought to douse fears that the government would nationalize crippled banks.
White House press secretary Robert Gibbs said Friday afternoon the Obama administration continues to "strongly believe that a privately held banking system is the correct way to go."
Stocks pulled well off their lows after the comments.
According to preliminary calculations, the Dow Jones industrials fell 100.28, or 1.34%, to 7,365.67 after earlier falling more than 215. On Thursday, the Dow broke through its Nov. 20 low of 7,552.29, and closed at 7,465.95, its lowest level since Oct. 9, 2002, the depths of the last bear market.
The Standard & Poor's 500 index fell 8.89, or 1.14%, to 770.05. The benchmark most watched by traders hovered near its Nov. 20 close of 752.44 but remained further above its Nov. 21 trading low of 741.02.
The Nasdaq composite index fell 1.59, or 0.411, to 1,441.23.
Declining issues outnumbered advancers by about 4 to 1 on the New York Stock Exchange, where volume came to 1.67 billion shares.
The break to fresh bear market lows for the blue-chip Dow and the broader Standard & Poor's 500 index is a worrisome sign. And it could signal that more selling is coming, says Quincy Krosby, chief investment strategist at The Hartford, a financial services firm.
"One thing we know about markets is that selling begets selling, and that is the risk," says Krosby.
Krosby notes that the stock market in many ways is a measure of how the nation feels about itself.
"The Dow is reflective of the national mood," says Krosby. "Right now the mood is very pessimistic and signals a negative outlook and a lack of confidence."
The stock market has been struggling mightily in 2009 after plunging 38.5% in 2009. The market entered the session down almost 14% for the year.
The investor angst is being driven by fast-sinking portfolio values caused by the severe economic fallout from the imploding housing market and credit crunch. The broad market is now down more than 50% from its highs in the fall of 2007.
Stocks have been falling under the weight of a deepening recession, a dearth of confidence among investors, and growing worries that the economy is not likely to improve in the short term despite massive government intervention.
"The market is sinking them into oblivion," says Gary Kaltbaum, of money management firm Kaltbaum & Associates.
The biggest weight on the market is the financial sector. Bank stocks are down sharply again today as investors react to the possibility that the banks are in for some kind of nationalization. Citigroup fell more than 22% to $1.95.
"The financials will continue to weigh on the market," says Kaltbaum.
Wall Street is now trying to determine when the selling may end and how low the market must fall before the dust settles. Merrill Lynch economist David Rosenberg says the S&P 500 could drop to 666 based on his lower than market-expectations for profit projections for 2009 and 2010, which would equate to a further drop of roughly 12%.
An estimate from financial firm FusionIQ suggests the S&P 500 could fall as low as 600, which would equate to a further drop of more than 20%.
Overseas, Japan's Nikkei stock average fell 1.87% and Hong Kong's Hang Seng fell 2.49%. Britain's FTSE 100 declined 3.18%, Germany's DAX index tumbled 4.76%, and France's CAC-40 fell 4.25%.
Investors received further evidence of the sagging economy as home improvement retailer Lowe's said its fourth-quarter profit dropped 60% after customers cut back on spending. Lowe's also provided a 2009 earnings forecast that was short of analysts' expectations.
Department store chain J.C. Penney said its fourth-quarter profit tumbled 51%, but beat analysts' expectations. However, J.C. Penney forecast a first-quarter loss greater than what analysts are forecasting.
Shares of Lowe's fell $1.03, or 6.1%, to $15.95. J.C. Penney shares rose 15 cents to $15.08.
Meanwhile, the Labor Department said consumer prices rose 0.3% in January, matching the forecast of economists polled by Thomson Reuters. The rise in the consumer price index, which is a key measure of inflation, was the largest gain since July. Over the past year, inflation has been flat, the lowest reading in more than a half-century.
"The inflation numbers today suggest inflation is not an issue and deflation is not an issue either, which is a good thing," Strauss said.
Core inflation, which excludes volatile food and energy prices, increased 0.2%. Economists were anticipating core inflation would rise 0.1%.
Bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.75% from 2.86% late Thursday. The yield on the three-month T-bill, considered one of the safest investments, fell to 0.27% from 0.30% late Thursday.
Contributing: Associated Press