By Kate Gibson
U.S. stocks ended with steep losses Thursday after an afternoon
meltdown lopped nearly 1,000 points off the Dow Jones Industrials
Average -- its biggest intraday drop ever -- before a comeback of
sorts, as Europe's troubles took hold on Wall Street and talk of
errant trades exacerbated the swift selloff.
"We're not talking about a couple of companies going bust; we're
talking about countries," said Peter Boockvar, equity strategist at
Miller Tabak, of worries that Europe would not be able to contain
debt troubles that sparked riots in Greece.
At the worst of the afternoon freefall, the major stock indexes
were all down 8%, with the Dow Jones Industrial Average (DJI)
diving 992.6 points before halting its decline, finishing at
10,520.32, off 347.8 points, or 3.2%.
"The panic in the middle of the day was market makers that just
disappeared, and every machine on Wall Street was trying to sell
into a market that didn't exist. That was a bizarre electronic
quant panic of people selling into a black hole," said
Boockvar.
Questions about trading
As equities fell the most in more than a year, 10-year treasury
notes rallied, with yields dropping the most since September 2008
and the euro falling to a new 14-month low against the U.S. dollar,
below $1.26. Credit-default swaps spreads for North American
companies jumped, and gold futures climbed closer to an all-time
high past $1,200 an ounce.
The finish marked the Dow's biggest point drop since Feb. 10,
2009 and largest percentage decline since April 20, 2009, according
to Dow Jones Indexes.
The S&P 500 Index (SPX) fell 37.72 points, or 3.2%, to
1,128.15, the worst day for the index since it fell more than 4% on
April 20, 2009, according to Standard & Poor's.
The Nasdaq Composite (RIXF) declined 82.65 points, or 3.4%, to
2,319.64.
Analysts compared the day's trade to the market's reaction to
low points in the 2008 financial crisis.
"The markets have an eerie feeling similar to the timeframe when
Lehman went down," said Andrew Brenner, head of emerging markets at
Guggenheim Securities.
More than 17 stocks fell for every one that gained on the New
York Stock Exchange, where nearly 2.6 billion shares traded and
composite volume topped 10.7 billion.
A brief plunge and then partial snapback in Procter & Gamble
Co. (PG), Accenture (ACN), 3M (MMM) and other shares -- some to as
little as a penny -- suggested a technical or trading glitch might
have accelerated the sharp, swift drop in indexes over the period
of less than an hour.
Shares of P&G, one of the 30 Dow components, plunged as much
as 37% to under $40, according to FactSet, but recovered to close
down 2.3% at $60.75. NYSE says the day's low was actually $56.
"We believe the trade was an error," P&G said in an emailed
statement.
Apple (AAPL) shares fell as much as 22% before closing off 3.8%.
Accenture shares fell to a penny, according to FactSet, before
closing at $41.09, off 2.6%.
The Securities and Exchange Commission and Commodity Futures
Trading Commission said they were working closely with other
regulators and the exchanges "to review the unusual trading
activity that took place briefly this afternoon."
Some lawmakers were already calling for regulatory review of
computerized trading programs that they charged have created
volatile and dangerous swings in stock movements.
Bailout concerns
Setting the stage for the market's swift afternoon tumble,
investors pushed stock prices lower on heightened worries that
Europe's high budget deficits would lead to a new round of global
financial crisis.
As Greece looked to a $144 billion rescue from the International
Monetary Fund and 15 other nations that use the euro to help cover
its debt, some questioned if some of the nations helping foot the
bill -- namely Portugal and Spain -- would eventually need to be
bailed out as well.
"People are very, very nervous about what's going on ... We're
thinking contagion. We're looking at what's happening in Greece and
thinking, gee, if that can happen in Greece, how about Portugal,
Spain, Italy," which are bigger countries in the euro zone,
portfolio manager James Cordier at Optionsellers.com said.
Plus, stocks were coming off a run that took the S&P 500
about 80% from its March 2009 low.
"You can go back to Goldman Sachs Friday when the market sold
off. Since then the market has been prone to headline risk and
looking for a reason to sell off," said Jay Suskind, senior vice
president at Duncan-Williams.
"Is the market now seeing Greece and Europe as the canary in the
coal mine for us? We all know we have budget and deficit issues,"
Suskind said.
Economic backdrop
U.S. economic data was mixed, while retailers reported April
sales slowed from March's robust gains, with a majority of those
reporting missing expectations.
Gap Inc. (GPS) was among the underperformers, its shares down
7.2% after the apparel chain reported same-store sales dropped
3%.
Abercrombie & Fitch Co. (ANF) shares declined 8.6% after the
teen-clothing seller after its same-store sales fell 7%.
Ahead of Friday's jobs report for April, the Labor Department
reported initial claims for unemployment benefits fell by 7,000
last week to 444,000.
The government data is expected to show the U.S. economy added
between 189,000 to 200,000 jobs last month, while the rate of
unemployment held at 9.7%.
Separately, the Labor Department on Thursday said U.S.
productivity climbed 3.6% in the first quarter.
In Washington, Treasury Secretary Timothy Geithner and former
Treasury Secretary Henry Paulson pitched financial reform, telling
a fact-finding panel the economic crisis came in large part because
regulators didn't have the power to limit risk. .