Dow falls through 9,000 ; Hits lowest levels in 5 years
NEW YORK - Stocks plunged in the final minutes of trading Thursday, sending the Dow Jones industrials down more than 675 points, or more than 7 percent, to their lowest level in five years after a major credit ratings agency said it was considering cutting its rating on General Motors Corp. The Standard & Poor's 500 index also fell more than 7 percent.
The sell-off came as Standard & Poor's Ratings Services put GM and its finance affiliate GMAC LLC under review to see if its rating should be cut. GM has been struggling with weak car sales in North America.
The action means there is a 50 percent chance that S&P will lower GM's and GMAC's ratings in the next three months.
S&P also put Ford Motor Co. on credit watch negative. The ratings agency said that GM and Ford have adequate liquidity now, but that could change in 2009.
GM led the Dow lower, falling 31 percent, while Ford fell 58 cents, or 22 percent, to $2.08.
"The story is getting to be like that movie Groundhog Day," said Arthur Hogan, chief market analyst at Jefferies & Co. He pointed to the still-frozen credit markets, and Libor, the bank-to-bank lending rate that remains stubbornly high despite the Fed's recent rate cut.
"Until that starts coming down, you'll be hard-pressed to find anyone getting excited about stocks," Hogan said. "Everything we're seeing his historic. The problem is historic, the solutions are historic, and unfortunately, the sell-off is historic. It's not the kind of history you want to be making."
According to preliminary calculations, the Dow fell 678.91, or 7.3 percent, to 8,579.19. The blue chips hadn't fallen below the 9,000 level since Aug. 6, 2003.
Broader stock indicators also tumbled. The Standard & Poor's 500 index fell 75.02, or 7.6 percent, to 909.92, while the Nasdaq composite index fell 95.21, or 5.47 percent, to 1,645.12.
Traders are looking for some slowdown in the selling and perhaps even a rally after the losses logged in the past six sessions. The Dow is down 1,593 points, or 15 percent, in that time, its worst losing streak since August 2007 when it shed 812 points, or 6 percent.
Thursday marks one year since the Dow and the S&P 500 closed at their highs. At the start of Thursday's trading, the Dow was down 4,940 points, or 34.8 percent, since closing at 14,198. The S&P 500, meanwhile, is off 580 points, or 37 percent, since recording its high of 1,565.15.
While credit markets appeared tight, demand for short-term Treasurys appeared to wane Thursday. The yield on the three-month Treasury bill, which moves opposite its price, rose to 0.69 percent from 0.63 percent late Wednesday. Longer-term debt prices also fell, with the yield on the 10-year note rising to 3.78 percent from 3.65 percent late Wednesday.
Investors across markets were mulling a plan being considered by the Bush administration to invest in hobbled U.S. banks as a way to stabilize the financial sector. An administration official, who asked not to be identified because no decision has been made, said the $700 billion rescue package passed by Congress last week allows the Treasury Department to inject fresh capital into financial institutions and obtain ownership shares in return.
Britain rolled out a similar plan, though no U.K. bank has received any investments. In Iceland, the government now has control of the country's three major banks as it struggles to contain the troubles there.
Investors also digested a government report that applications for unemployment benefits dropped last week from a seven-year high. The Labor Department's report matched projections, though claims still remain at elevated levels.
Wall Street is also looking for any effects of short selling now that a three-week ban imposed by regulators has expired. Short selling is a technique in which investors borrow shares in a company from a broker and sell them, hoping to buy them back later at a lower price. Essentially, it's a bet that a stock's price will fall. Short sellers can lose money if they have to repurchase the stock after it has risen.
Some analysts believe the unprecedented ban on short selling - an effort to bolster investor confidence amid the worst financial crisis since the stock market crash of 1929 - did more harm than good at a time of historic market volatility. They contend that short sellers help the market rally by covering their bets and creating demand for stocks.
IBM Corp. rose $1.37, or 1.5 percent, to $91.92 after posting third-quarter results that topped forecasts and the technology company posted affirmed its full-year earnings outlook. That helped stir overall demand for technology stocks.
Intel rose 71 cents, or 4.4 percent, to $16.96, while Microsoft rose 77 cents, or 3.4 percent, to $23.78.
Energy names fell as oil prices declined. Exxon Mobil Corp. fell $3.10, or 4 percent, to $73.90, while Chevron Corp. fell $3.71, or 5.1 percent, to $69.39.
Light, sweet crude fell $1.97 to $86.98 per barrel on the New York Mercantile Exchange as investors worried that a slowing economy might damp demand. Comments from OPEC nations about an emergency meeting to address the decline helped pare some of oil's slide.
Financial companies such as Morgan Stanley fell $2.16, or 13 percent, to $14.64, while Wells Fargo Corp. declined $3.27, or 10 percent, to $28.63.
Health insurer WellPoint Inc. fell $2.29, or 5.7 percent, to $38.15, and drug maker Eli Lilly & Co. fell $1.99, or 5.3 percent, to $35.91.
Volume on the NYSE came to 718.1 million shares.
The Russell 2000 index of smaller companies fell 10.80, or 1.98 percent, to 535.77.
In Asia, Japan's Nikkei 225 closed down 0.50 percent while the Hang Seng added 3.31 percent. In Europe, Britain's FTSE-100 fell 1.21 percent, Germany's DAX fell 2.53 percent, and France's CAC-40 declined 1.55 percent.