By Tomoeh Murakami Tse and Kathleen Day
Washington Post Staff Writers
Thursday, March 1, 2007
NEW YORK, Feb. 28 -- Just like the previous day, the opening of the U.S. markets Wednesday was preceded by disappointing economic news.
The markets did not blink, however, as the federal government reported that the economy was growing at a slower rate, and that sales of new homes plunged more than 16 percent in January, the biggest monthly percentage decline in 13 years.
Investors, analysts said, were instead more focused on Federal Reserve Chairman Ben S. Bernanke's congressional testimony and signs of stabilization in global markets, as the benchmark stock indexes in Shanghai and Shenzhen rose about 4 percent after their dramatic 9 percent drop Tuesday.
The Dow Jones industrial average, which fell 3.3 percent Tuesday, regained ground in fits and starts before closing at 12,268.63, up 52.39, or 0.43 percent.
The Nasdaq composite index closed at 2416.15, up 8.29, or 0.34 percent. The Standard & Poor's 500-stock index closed at 1406.82, up 7.78, or 0.56 percent.
The relative calm was palpable on the floor of the New York Stock Exchange, where traders watched the Dow inch up in early trading.
"So far so good," a trader said, flashing a colleague a smile before dashing off.
Others monitored screens that were no longer flashing bright red as the did the day before, and took a wait-and-see approach as prices fluctuated.
"It seems to be okay. But things can change any minute," said Doreen Mogavero of the brokerage Mogavero, Lee & Co., who placed orders on a transportation stock for a client who wanted 25,000 shares. "When we open like this, I want to wait to see if they come back a little bit."
Outside, a cluster of traders taking cigarette breaks grumbled about the technological difficulties in making trades quickly. They said that for about a 20-minute span Tuesday, from 3:40 to 4 p.m., the orders they had placed for customers were stuck in a queue.
It was unclear Wednesday whether the delays were related to a technological glitch that caused the Dow to plummet 200 points in a matter of minutes shortly before 3 p.m. Tuesday. The drop was caused when the system that calculates the average recorded a backlog of trades after the process was switched to a backup computer.
Down the street, traders at the American Stock Exchange complained of similar problems, and large brokerage firms also said they had trouble executing trades.
Traders said that generally, when they send buy or sell requests via a handheld device, those orders are reflected almost instantly on trading-floor screens. That was not the case Tuesday.
"We were just sitting on our hands," said a trader who requested anonymity because he was not authorized by his firm to speak to the press. "I kept going back to the specialist, asking, 'Did you get it? Did you get it yet?' But nothing was showing up."
Because they could not see whether their orders had registered, some traders sent the same order twice, which meant they ended up buying or selling twice as many shares than they wanted.
Some of that frustration eased Wednesday after stocks got a noticeable bump before 11 a.m., as TV screens flashed images of Bernanke speaking before Congress. The Dow recovered more than 100 points after Bernanke said the U.S. economy remained stable and he addressed the growth of high-risk mortgage loans known as subprime mortgages, one of the biggest concerns in the market. Troubles in that part of the lending industry, he said, were unlikely to spill over to the larger lending industry.
"There is really no material change in our expectations for the U.S. economy since I last reported to Congress a couple weeks ago," Bernanke said.
Although investors seeking shelter in stable investments bid up the price of Treasury bonds Tuesday, those bonds fell Wednesday as stocks recovered some losses. The yield on the benchmark 10-year treasuries, which falls as prices rise, reversed more than half of Tuesday's declines.
The rally in stocks was led by health care, consumer staples and other defensive stocks that tend to fare better during a market downturn.
"I think that's what's putting a floor underneath the market today," said Joseph Quinlan, chief market strategist at Bank of America.
Many analysts said it would take at least several days for the market to settle, and cautioned investors from making hasty decisions.
"There's been some improvement, but I wouldn't expect to have an immediate sense of clarity," said Steven Wieting, an economist with Citigroup.
For now, some money managers said their investment view remained unchanged from the day before the market dropped.
Chad Peterson, spokesman for TIAA-CREF, a financial company that manages more than $400 billion, said that portfolio mangers there were "sticking to existing stock-picking strategies."
M. Steve Yoakum, head of the Public School and Education Employee Retirement System of Missouri, said: "We think it was a technical correction. It won't cause us to change any of our strategies."
Yoakum said he and his staff were in constant contact with the several dozen money managers he parcels out control of the pension fund to, and they agree that "stocks continue to be relatively cheap to bonds" and promise a bigger return long-term.
John Linehan, portfolio manager for the T. Rowe Price Value Fund, said he entered the market late in the day, snapping up $40 million worth of large, blue-chip companies across the board, including some in the health-care, technology and industrial sectors.
"You have a lot of market participants including a few investment professionals who had never lived through something like this," Linehan said. "There were desperate sellers, and we went in and took advantage of that and got some good prices."
Shortly before markets closed Wednesday, Sal Morreale, a trader at Cantor Fitzgerald, said that the technological delays of the previous day seemed to be behind them and that market fears had been quelled, at least temporarily.
"You had a couple of times where you saw some sell pressure," he said. "I thought, 'jeez, now we're really on the tightrope' . . . but it sort of went right back up. It didn't cave. I think today is sort of the day when people take a deep breath."
Day reported from Washington.