Ruthless Selloff Hits All Sectors: This Was One for the Record Books
As breathtaking and unfathomable as the Nasdaq Composite's rise was from mid-October to mid-March, so too has been the decline. The ruthless unraveling process continued today as the index suffered its largest point decline and second-largest percentage drop in its history.
Furthering the pain, the devastation in tech names was accompanied by a steep selloff in blue-chip stocks. The
Dow Jones Industrial Average
fell 616.23, or 5.6%, to 10,307.32, its worst-ever point loss in history; the percentage drop was not as onerous.
The Nasdaq closed down 355.46, or 9.7%, to 3321.32, its lowest close since Nov. 17. Additionally, the tech-plagued index crashed through what had been considered critical support levels at 3649.11 -- the intraday low hit
April 4, as well as 3500, its 200-day moving average.
The index is now down 34.2% from its all-time high of 5048.62 set March 10, and down 18.4% for the year. For the week, it lost 25.3% and suffered its first five-day trading week where it fell every session since Sept. 19-23, 1994, when it lost 2.6%.
Led by
Microsoft
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,
Intel
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,
Oracle
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,
Cisco
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and
Qualcomm
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, tech bellwethers fell in near unanimity; the
Nasdaq 100
lost 9.7%.
Big declines were also sustained by erstwhile highfliers such as
Emulex
(EMLX)
,
E-Tek Dynamics
(ETEK)
and
Rambus
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.
The
Morgan Stanley High-Tech 35
shed 8.4% while the
Philadelphia Stock Exchange Semiconductor Index
lost 11.7%.
TheStreet.com Internet Sector
index fell 100.07, or 12.3%, to 712.95.
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Previously, so-called Old Economy names had benefited from weakness in tech stocks. But a stronger-than-expected
Consumer Price Index
report had investors fearful the
Federal Reserve
will continue to aggressively tighten interest rates. Thus, they rotated assets out of stocks entirely, rather than moving assets within the equity market.
All 30 of the Dow's components ended in arrears. Weakness in financials
American Express
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and
J.P. Morgan
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, as well as tech components Intel,
Hewlett-Packard
(HWP)
and
IBM
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exerted the greatest negative impact.
Finanical stocks in general tumbled at the prospect of further Fed rate hikes and the stock market's losses. The
Philadelphia Stock Exchange/KBW Bank Index
fell 7.1% while the
American Stock Exchange Broker/Dealer Index
shed 12.7%.
As with the Dow, weakness in financials and tech names weighed most heavily on the
S&P 500
, which fell 83.07, or 5.8%, to 1359.44. Other industry groups provided no solace.
The
Russell 2000
declined 35.60, or 7.3%, to 453.62, reflecting the grossly negative market internals.
In
New York Stock Exchange
trading, 1.3 billion shares were exchanged while declining stocks swamped advancers 2,646 to 427. In
Nasdaq Stock Market
action 2.5 billion shares traded while losers routed gainers 3,946 to 546. New 52-week lows bested new highs 112 to 17 and by a whopping 556 to 7 in over-the-counter trading.
No Relief in Sight
The CPI climbed 0.7% in March, its biggest increase since April 1999 and above the consensus estimate of 0.5%. The core rate, which excludes food and energy, rose 0.4%, double expectations. The data renewed fears of Fed rate hikes, overshadowing hopes the carnage in stocks will dissipate the 'wealth effect'
Alan Greenspan
has repeatedly spoken about.
In a
speech about risk management today, Greenspan did not directly address the developments on Wall Street. But in a discussion of financial crises, he said "financial institutions should expect to look to the central bank only in extremely rare situations."
Market players took that comment as an indication that no relief is forthcoming from the Fed, as was the case in October 1998.
"He slyly sent a message he's not going to bail the market out at these levels, he'll let it go further," said Edward Nicoski, chief market strategist at
U.S. Bancorp Piper Jaffray
.
Stocks falling further is exactly what Nicoski expects, even if the market is now "oversold" on a short-term basis.
"It doesn't look like this is going to be over with," he said. "You've busted the bubble really bad. There's no evidence you've made a good low."
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Some classic signs of fear usually associated with bottoms were evident -- including a sharp rise in put buying, gains in gold and a spike in the
Chicago Board Options Exchange Volatility Index
, which rose 15.3% to 39.33 after trading intraday at its highest levels since October 1998.
But market players were loathe to suggest the carnage will end here. A few even saw similarities between the recent action and the days preceding the crash in October 1987.
"It's track in many senses," Nicoski said. In 1987 there were "very volatile days and weeks coming up to the crash, then a horrible Friday, the crash on Monday and the market illiquid on Tuesday. And the Fed was raising interest rates."
The strategist did not forecast a repeat of that scenario, nor does he foresee a protracted bear market in the offing.
"It's painful, but a healthy purging that was necessary," he said of the selloff. "Now we'll return to sanity" where investors will be buying "quality companies, not four-lettered symbols that are illiquid."
Monday Looming Large
The concern on Wall Street is that mutual funds will get hit with redemptions after investors review the damage tonight and over the weekend, leading to additional selling on Monday.
"We've had some turbulent Fridays in the past that didn't translate into bad Mondays," said Bob Basel, director of listed trading at
Salomon Smith Barney
, trying to downplay such a scenario. The fact that major averages did not close at session lows -- bouncing modestly in the final 20 minutes of trading -- further emboldened some players.
Like many professionals, Basel described the action as orderly. That is, at odds with the extraordinary losses posted. Indeed, the
Securities & Exchange Commission
said "¿the clearing systems and the markets are successfully dealing with processing orders and distributing price information" in a statement issued late Friday.
"I'm seeing a distinct lack of liquidity on the buyside" rather than wholesale selling, Basel said. "With the market down sharply, I don't see people stepping in to take their shots. They'd rather wait until Monday."
...Pain |
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But that kind of complacency is exactly the problem, according to one hedge fund manager who maintains a long-held bearish view.
"This is what crashes are made of," he said. "If everyone thought this was a bottom, they'd be buying. Monday could be a very ugly day."
Among other indices, the
Dow Jones Transportation Average
fell 176.52, or 6.1%, to 2727.04; the
Dow Jones Utility Average
shed 10.57, or 3.4%, to 303.86; and the
American Stock Exchange Composite Index
declined 57.26, or 6.3%, to 857.97.
For the week, the Dow was down 7.2%; the S&P lost 10.5%, the Nasdaq fell 25.3%, the Russell was off 16.4%, and TheStreet.com Internet Sector Index dropped a whopping 32.2%.
The price of the 10-year Treasury note rose 13/32 to 104 19/32, its yield falling to 5.88%.
For coverage of today's top stocks in the news, see the Company Report, published separately
.
