Dow Closes At 5 1/2-Year Low
By Kim Hart
Washington Post Staff Writer
Tuesday, October 28, 2008
A burst of selling in the final minutes of a volatile day of trading left stocks sharply lower yesterday as investors focused more on the deep strains in the economy than on a glimmer of optimism in a surprise gain in new-home sales.
Trading was light as investors awaited the beginning of the Federal Reserve's two-day meeting today in which the bank's policymaking committee will consider lowering interest rates again to head off a prolonged economic slump. The Fed is expected to cut rates tomorrow by a half-percentage point, to 1 percent.
Stocks got off to a negative start after a massive sell-off overseas, sending the Dow Jones industrial average down 170 points in early trading. The market reversed course on the housing news and on plans that the Treasury would start distributing much-needed money to nine major banks this week.
After the swift sell-off near the close, the Dow finished down 203.18 points, or 2.4 percent, to 8175.77, its lowest level in 5 1/2 years. By the end of trading, the Dow had slid more than 400 points from its high during the day. The broader Standard & Poor's 500-stock index lost 27.85 points, or 3.2 percent, to 848.92, while the tech-heavy Nasdaq was down 46.13 points, or 3 percent, to 1505.90.
As part of the Treasury's plan for bank infusions, 15 banks added their names to the list. Capital One of McLean, for example, will take $3.55 billion from the Treasury.
Regional banks received a $31 billion infusion of government cash yesterday, sparking rallies in banks such as Fifth Third Bancorp, which jumped 17 percent before falling back to close up 5 percent at $8.47. SunTrust Banks, jumped 5 percent and then fell back to close up less than 1 percent at $35.34.
"Many of the uncertainties people have been focused on are closer to resolution than they were," said Larry Coats, chief executive of Oak Value Capital Management. "It's no longer an issue of whether these programs will take place; now it's a question of what the impact will be and how long it will take."
Commerce Department data on new-home sales provided a bright spot in tug-of-war trading. Sales of new, single-family homes rose 2.7 percent last month to a seasonally adjusted annual rate of 464,000 homes. Economists had expected sales to drop from August.
The median price of a new home sold in September declined 9.1 percent from a year ago to $218,400, the lowest price in four years.
"We're starting to see a process whereby the housing market is bottoming, but we're certainly not at the end yet," said Brian Bethune, chief U.S. financial economist for Global Insight. "Investors have become so myopic and driven by the short term that it's very hard for them to see beyond the next day."
Earnings reports also filtered through the market yesterday. Verizon Communications was the Dow's strongest component after reporting a 31 percent increase in profit in the third quarter, meeting Wall Street's expectations. But the company expects a rough fourth quarter in anticipation of lighter consumer and business spending.
Oil was trading at less than $62 a barrel and settled at $63.22 despite a move by OPEC on Friday to cut production by 1.5 million barrels a day. Oil prices have dropped 57 percent from their July high of $147.
Overseas markets plummeted yesterday, setting the tone for Wall Street's opening.
In Asia, Japan's Nikkei fell 6.4 percent, closing at its lowest level in 26 years. Japan's two largest banks fell 15 percent. Prime Minister Taro Aso ordered the government to prepare emergency measures to stabilize markets. The measures are expected to include government purchase of bank stocks, tighter rules on short selling and a fivefold increase in the amount of government money that can be injected into banks.
Hong Kong's market was rattled by huge sell-off, driving the Hang Seng index down 12.7 percent. Stocks in China fell about 6 percent, with the Shanghai composite index slipping to its lowest level in more than two years. The major exchanges in Europe posted losses between 2.8 to 4 percent, indicating fears that recent government measures may not be enough to avoid recession.
Kuwait stepped in yesterday to avoid a major bank failure, South Korea cut interest rates, and the world's top industrialized nations hinted at possible action to curb the rapid appreciation of the Japanese yen against the U.S. dollar. Over the weekend, the International Monetary Fund said it had reached preliminary agreement on rescue plans for Hungary and Ukraine.
That U.S. trading was not dragged down even more by the negative foreign news is a sign that some stability may be emerging, said Richard Cripps, chief investment officer at Stifel Nicolaus in Baltimore.
"Perhaps selling pressure is starting to abate, even though stock prices reflect difficult times ahead," he said.
Correspondent Blaine Harden in Tokyo contributed to this report.
View all comments that have been posted about this article.