Stocks plunge, partly recover
The Dow dropped 470 points Wednesday before closing down 173.45 points, or 1 percent, to 16,141.74.
NEWYORK— Fear drove Wall Street to one of its most dramatic, nauseating days in years on Wednesday.
Investors fled stocks and poured into bonds as worries about a global economic slowdown intensified. The Dow Jones industrial average dropped 460 points in afternoon trading, all three U. S. stock indexes were in negative territory for the year, and the so- called fear index spiked.
A late recovery limited the damage, but investors were shaken after the heaviest day of trading in more than three years.
“I think it’s fair to call it a global growth scare right now,” said Bill Stone, chief investment strategist at PNC Asset Management.
Investor concerns of a world wide economic slowdown turned into outright fear after weeks of turbulence. Germany, Europe’s biggest economy, is struggling. Greece, a key actor in Europe’ debt crisis, could see its government collapse next year, putting a crucial bailout program in danger.
By the end of the day, the Dow Jones industrial average lost 173.45 points, or 1 percent, to 16,141.74.
The yield on the benchmark U. S. 10year note fell from 2.20 percent to below 1.91 percent, a drop of 29 basis points. By the end of the day, it pulled back to a yield of 2.14 percent.
“It typically takes weeks for 10- year Treasurys to move 29 basis points,” or 0.29 percentage points, noted Tom Di Galoma, head of fixed income rates in New York at ED& F Man Capital. “Today it moved 29 basis points in 5minutes.”
Investors have grown nervous of a stock market that had pushed ever higher, even in the face of a weakening global economy. The U. S. market has also not had a correction, a technical term for when a stock or index falls 10 percent or more, in more than 3 years. Historically a correction happens every 18months.
Wednesday’s slide brings the market closer to that long- predicted point.
Michael Binger, senior portfolio manager at Gradient Investments, said that investors may have started to step back into the market in the last hour of trading as the S& P500 approached a drop of close to 10 percent from its record close of Sept. 18. “The market has been waiting for this 5 to 10 percent correction for quite some time, and we got it,” he said.
Many market watchers say occasional corrections are a healthy phenomenon over the long term and give investors an opportunity to add to their holdings at a lower cost.
“That’s why it’ so important to stay invested at a time like this, rather than think it’s a time to get out,” said Kate Warne, an investment strategist at Edward Jones.
It’s not the U. S. economy that investors are worried about. It’s everyone else. Last week markets sold off sharply after the International Monetary Fund cut its economic forecast for the global economy, noting the weakness in Europe and in Asia.
The U. S. economy expanded at a 4.6 percent annual rate in the April- June quarter and most economists forecast growth will be a healthy 3 percent this year and next. The concern is that weakness globally will infect the U. S. economy and hurt corporate profits.