Worries take hold on Wall Street
NEW YORK -- Wall Street suffered one of its worst losses of 2007 Thursday, leading a global stock market plunge as investors succumbed to months of worry about the mortgage and corporate lending markets. The Dow Jones industrials closed down more than 310 points after earlier skidding nearly 450.
Investors who had been able for months to largely shrug off discomfort about subprime mortgage problems and a more difficult environment for corporate borrowing finally decided it was time to sell after the Commerce Department issued another disappointing home sales report.
The daily drumbeat of bad news on housing also continued as two of the largest home builders, D.R. Horton Inc. and Beazer Homes, posted quarterly losses.
Financial shares took a beating on growing evidence that problems in the subprime mortgage market are spreading, making financing the corporate buyouts that drove the market's spring rally more difficult.
"It was easy credit that helped fuel stock prices," said Peter Boockvar, equity strategist at Miller Tabak & Co. in New York. Worsening credit conditions means "less liquidity for private equity, stock buybacks, business expansion, consumer spending, global growth."
While stocks plummeted, investors poured money into the safe haven of the bond market. The soaring price of Treasuries pulled yields lower, and the rate on the 10-year note plunged to 4.79 percent from late Wednesday's 4.90 percent.
Thursday's trading was the latest and most extreme in a series of frenetic sessions over the past month, many also accompanied by triple-digit swings in the Dow, as investors sold on worries or optimism regarding the subprime mortgage fallout. Many analysts have described the back-and-forth trading as overwrought and based more on gut emotion than careful consideration of market and economic fundamentals.
That was the feeling again Thursday.
"The rally in bonds at this point looks a little bit overdone," said Tom Higgins, chief economist at Payden & Rygel Investment Management in Los Angeles. "If you're going to park money temporarily, then cash I think is the way to be, but I think that we're going to form a bottom. I think people are going to be legging it back into the market."
The Dow plunged 311.50, or 2.26 percent, to 13,473.57 after falling 449.77 in earlier trading. The close was its worst since the 416.02 it lost on Feb. 27, when a drop in the Shanghai stock market rattled world exchanges.
Broader market indicators also slid. The Nasdaq composite index tumbled 48.83, or 1.84 percent, to 2,599.34, while the Standard & Poor's 500 skidded 35.43, or 2.33 percent, to 1,482.66.
Home sales figures Thursday from the Commerce Department showed sales of new homes fell 6.6 percent last month to a seasonally adjusted annual rate of 834,000 units, more than triple what had been expected and the largest percentage drop since sales fell by 12.7 percent in January.
Before Thursday's big drop, the Dow had been up 10.61 percent for the year -- and that margin has now been cut to 8.11 percent. The S&P 500 was up 7.04 percent, and the market decline now puts it at a year-to-date gain of 4.54 percent; while the Nasdaq's 9.64 percent increase has been cut to 7.62 percent.