Worst Week Ever: Dow, S& P Each Fall 18%

Stock prices swung sharply on Wall Street, with investors still selling heavily but also scooping up stocks that have been decimated by more than a week of huge losses.
Washington Post Staff Writer
Saturday, October 11, 2008; Page D01

Cloaked in the fear of a global recession, U.S. stocks limped to the end of a brutal week of trading yesterday, ending their worst week in history.

The Standard and Poor's 500-stock index and the Dow Jones industrial average lost 18 percent of their value this week, with the Dow falling through two floors: closing below 9,000 for the first time since 2003 and briefly dipping below 8,000. The Nasdaq composite index was down 15 percent. Both the S&P 500, a broader index watched by market professionals, and the Dow, an index of 30 blue-chip stocks, declined by record rates this week.

Wall Street is facing deepening fears about the financial crisis and its spillover to other parts of the economy. Traders have shrugged off drastic government efforts to address the problem, including a global interest rate cut and plans to buy banks' toxic mortgage debt. The Bush administration is now hammering out the final details of a plan that would allow the government to inject cash into banks in exchange for ownership stakes.

"We're in the throes of a market that is in liquidation mode," said Art Hogan, chief market analyst at Jefferies & Co. "We're indiscriminately selling stocks."

The Dow fell 1.49 percent, or 128 points, yesterday, to close at 8451.19. The S&P 500 fell 1.18 percent, to close at 899.22, while the tech-heavy Nasdaq managed to eke out a 0.27 percent gain, closing at 1649.51. It was the eighth straight trading day of losses for the S&P 500 and Dow.

The volatile day started with a nearly 700-point sell-off on the Dow as investors fled to safety, but stocks soon rebounded and bounced between negative and positive territory before falling back into the red for most of the day. During the last hour of trading, stocks staged another rebound as optimism built that a global response to the crisis could emerge this weekend from meetings between central bankers and finance ministers from the world's richest countries. The Group of Seven is meeting at the White House today to discuss the financial crisis.

There also was bargain hunting yesterday, with some investors convinced that the market is near its bottom, said Howard Silverblatt, a Standard & Poor's senior index analyst. "There's little doubt, in 10 years, these things will look like bargains," he said.

Some of yesterday's volatility, analysts said, also may have been caused by price drops that reached preset trigger points and prompted automated buy orders on entire indexes, causing a case of market whiplash.

"Yes, you're getting some computerized sales, but you're also dealing with hedge funds, Joe Six-Pack, institutional investors, retail investors, every investor out there getting out of the market," said Matt McCormick, portfolio manager and banking analyst at Bahl & Gaynor Investment Counsel in Cincinnati. "People are selling, and it's increasing volatility."

Traders have switched to capital-preservation mode, said Marc Chandler, global head of currency strategy at Brown Brothers Harriman. "Two weeks ago, people like me were saying, 'You have to ride out the storm,' " Chandler said.

But the S&P 500 is down 39 percent this year and off 26 percent in the past two weeks. "Now people are saying, 'We can't hold on anymore,' " he said.

There is a bright spot for American consumers: Oil prices continued a steep two-month decline yesterday, falling $8.89 to $77.70 a barrel on the New York Mercantile Exchange as traders bet that the slowing global economy will reduce demand for energy. That is the first time since October 2007 that light, sweet crude has settled below $80 a barrel.

That should eventually flow through to gasoline bills and could boost U.S. consumer spending, but it has dragged down energy stocks. Exxon Mobil fell 8.3 percent, or $5.64, yesterday, closing at $62.36 a share. Chevron was down 9.6 percent, or $6.17, to close at $57.83 a share.

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