Friday, March 06, 2009

Dow Plunges to New Low

NEW YORK, March 6 — Investors fled Wall Street again, driven by worries about the big banks in the United States and General Motors Corp.

Stocks ended at 12-year lows yesterday, more than wiping out the previous day's rally. Investors wrestled with more disheartening economic data, new concerns about GM and relentless uncertainty about the financial system. Short selling ahead of the government's employment report today exacerbated the losses, slashing 281 points from the Dow Jones industrials and sending all the major indexes down more than 4 per cent.

Stocks fell in every industry, with beleaguered banks posting some of the steepest drops. Citigroup Inc, still shaky despite receiving billions in government aid, at times sank below US$1 and finished down 10 per cent at US$1.02. General Motors, meanwhile, ended with a loss of 15 per cent at US$1.86 as it warned of possible bankruptcy.

"Citigroup going below a buck today was a little scary," said Mark LeStrange, director of sales at Source Trading.

"To say that we're cheap here and it's a good value, it sounds right, but in all reality we could go 50 per cent lower," he said. "Nobody has any idea how low we can go."

The Standard & Poor's 500 index is now down 56.4 per cent from its peak in October 2007, making it the second worst slide for the index since its fall of 86.2 per cent from 1929-32.

The latest torrent of selling came ahead of the February Labour Department report that is likely to show hundreds of thousands of jobs were lost. Even some positive news, including some better-than-expected retail sales and factory orders, was not enough to stoke investor confidence.

The reports failed to show a significant improvement and so the market gave back a big gain from Wednesday, said Doreen Mogavero, president of brokerage Mogavero, Lee & Co.

"The economic data is still obviously a huge worry," she said.

Short sellers also dragged on the market, analysts said. Short sellers place bets that a stock will fall, and rising short positions on a stock can intensify its decline.

"Just go out kill them. It's the easiest way to go out and make a buck," said Stephen A. Lieber, chief investment officer at Alpine Woods Capital Investors LLC in Purchase, New York, referring to short sellers.

The Dow fell 281.40, or 4.1 per cent, to 6,594.44, its lowest close since April 1997.
Broader indicators also tumbled. The S&P 500 index dropped 32.95, or 4.6 per cent, to 679.92, its lowest close since September 1996. The Nasdaq composite index fell 52.30, or 3.9 per cent, to 1,301.44.

The Russell 2000 index of smaller companies fell 21.49, or 5.8 per cent, to 349.77.
On the New York Stock Exchange, only 235 stocks advanced while 2,887 fell. Volume came to a heavy 1.89 billion shares.

Robert Pavlik, chief market strategist at Banyan Partners LLC in New York, agreed that short selling is driving the market and that the drubbing is keeping away investors who would be attracted by beaten down stocks.

"Long-term investors would really step in if prices got too low or oversold and begin to do some bargain hunting. But with all the uncertainty that has been created, long-term investors are not stepping in," he said. "What incentive do long-term investors have stepping? Traders rule the roost."

Stocks fell initially after China deflated investors' hope that it would take new steps to stimulate its economy, but the discouraging economic data sent stocks even lower. The hope that China would unveil more government spending to help its economy was a major factor behind the market's bounce on Wednesday, which sent the Dow Jones industrials up nearly 150 points after a five-day slide.

"It's been this continuous (cycle of) hope leads to disappointment," said Todd Salamone, senior vice president of research, Schaeffer's Investment Research in Cincinnati.

Since the Dow and the S&P 500 index ploughed through their November lows last week, dashing hopes that the market had indeed hit a bottom, investors have been left wondering how much more the market can fall. At the same time, there is a contingent of investors with a "why sell now" mentality who are fearful of missing the next rally, Salamone said.

"A lot of people are banking we can't go much further, but if you look to the '30s, we could indeed go a lot lower," he said, referring to Wall Street's huge losses during the Great Depression.

Discouraged by little evidence that Washington's efforts to stabilise the economy are working, investors have lost faith in the administration, he said.

"At this point, you've got to be asking will anything help?" Salamone said. "The fact could very well be that the government can't do very much."

Among yesterday's gloomy reports, the Commerce Department said orders for manufactured goods fell by 1.9 per cent during the first month of the year. While this was better than the 3.5 per cent drop economists had expected, it marked a record sixth straight month of declines.

Data showing that initial unemployment claims fell more than anticipated last week failed to buoy stocks. Economists surveyed by Thomson Reuters/IFR predict the Labour Department will report that US employers slashed 648,000 jobs in February — more than the 598,000 cut in January.

Rising unemployment is of particular concern because it means many consumers have less to spend. And consumer spending, which accounts for more than two-thirds of US economic activity, is crucial to helping the economy turn around. A handful of better-than-expected retail sales reports, including one from Wal-Mart Stores Inc, weren't enough to convince investors that consumer spending is improving.

The future of General Motors also plagued investors. The automaker said in its annual report that auditors raised serious doubt about its ability to continue operating. GM has already received US$13.4 billion in federal loans, and is seeking a total of US$30 billion from the government. GM dove to US$1.86.

Negative comments from Moody's Investors Service weighed on already depressed financial stocks. Concerns about capital levels led the ratings agency to downgrade the ratings of Bank of America Corp and Wells Fargo & Co. Moody's also lowered the outlook on JPMorgan Chase & Co's ratings to negative. Bank of America shares dropped 42 cents, or 11.7 per cent, to US$3.17; Wells Fargo plunged US$1.54, or 15.9 per cent, to US$8.12; JPMorgan tumbled US$2.70, or 14 per cent, to US$16.60.

Overseas, Britain's FTSE 100 fell 3.2 per cent, Germany's DAX index dropped 5 per cent, and France's CAC-40 fell 4 per cent. Earlier, Japan's Nikkei stock average rose 2 per cent after Wall Street's Wednesday rally, but Hong Kong's Hang Seng index fell 1 per cent. — AP

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