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Bear Looms Over Wall Street

The Standard & Poor's 500-stock index was down 16 percent from its peak, nearing the threshold of a bear market.
The Standard & Poor's 500-stock index was down 16 percent from its peak, nearing the threshold of a bear market. (By M. Spencer Green -- Associated Press)

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By Frank Ahrens
Washington Post Staff Writer
Wednesday, January 23, 2008

The Federal Reserve's interest-rate cut yesterday failed to prevent a wild day on Wall Street, as the Dow Jones industrial average dove from the outset of trading and mustered two rallies that ultimately fell short, sending the market precariously close to bear territory.

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The Dow plunged 300 points in the opening minute of trading, and was down 465 points from the previous day's close before recovering much of the loss. It closed down 128.11 points, or 1 percent.

"I think there's abject panic in the markets," said Thomson Financial economist Jeoff Hall. "Psychology is dominating at this point. It's very frazzled."

Continued concern over the U.S. housing crisis and its cascading impact into other sectors and around the world has rattled markets in recent days and raised fears of a recession. Congressional leaders have pledged to quickly pass an economic stimulus package.

The Dow has started 2008 on a sour note, down 10 percent since the beginning of the year. Yesterday's close, at 11,971.19, ended the worst 14 trading days to begin a year in Wall Street's history.

The Dow closed at a record 14,164.53 on Oct. 9 and has since fallen about 15 percent.

The Standard & Poor's 500-stock index, the one most closely watched by traders, is down 16 percent from its peak, nearing the 20 percent drop considered the threshold of a bear market.

Pimco analyst Mark Kiesel likened the current economic slump to a triple-play in baseball: a continued decline in housing prices, a stock-price slump and a rise in unemployment.

"Unemployment is the third out," Kiesel said. "The third out ends the inning and starts the recession."

Kiesel warned that the stock slump will probably continue, as he predicts falling corporate profits and at least $100 billion in write-downs to come.

"Now I think we're definitely moving headlong into a recession," Hall said. "And that's rare for me. I'm more of a champion of free markets and letting things run their course. But now, I'm thinking it's going to be as bad as the 2001 recession, or worse."

Other analysts said that even though the rate cut may stimulate the economy, it will not cure the underlying problem: the amount of debt carried by many consumers.


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