Wall Street Pounded Again

The Dow and the Nasdaq plunge, while Treasury bonds rally.
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Updated from 4:13 p.m. EST

Stocks closed sharply to the downside Wednesday as a session that had been weak all along took a decided turn for the worse in the final minutes of trading.

The

Dow Jones Industrial Average

sank 211.10 points, or 1.62%, to 12,799.04, taking a 150-point hit in the last hour of trading. It was the Dow's lowest close since April 17.

Only one of its 30 components,

General Motors

(GM) - Get Report

, finished in the black.

AIG

(AIG) - Get Report

was the worst decliner, sliding 5.7%.

At the same time, the

S&P 500

plunged 22.93 points, or 1.59%, at 1416.77, putting the index in negative territory for 2007. The

Nasdaq Composite

tumbled 34.66 points, or 1.33%, to 2562.15.

Robert Pavlik, chief investment officer with Oaktree Asset Management, said it's hard to call the drop truly meaningful since it came ahead of the Thanksgiving holiday.

"There was a lot of selling into what is an extended holiday weekend for many," said Pavlik. "You can't take a lot of anything away from today. This was a sign of more aversion to risk before what is essentially a long weekend. You do have to wonder, though, at what point this will all stop."

The stock market will be closed Thursday but reopen Friday morning at its normal time, then close at 1 p.m. EST. Bond markets will also close early to end the week.

Breadth was decidedly negative. On the

New York Stock Exchange

3.87 billion shares changed hands, as decliners beat advancers by a 12-to-5 margin. Volume on the Nasdaq reached 1.97 billion shares, with losers topping winners nearly 2 to 1.

Weighing on the mood were oil hitting a record high overnight, the dollar's continuing downward spiral and traders seeking safety in bonds.

U.S. Treasury securities rallied, sinking yields. The 10-year note was up 25/32 in price, yielding 4.00%, a level not seen in two years. The 30-year bond added 21/32, yielding 4.46%.

"With the market weakness, the bond market is reacting out of fear that equities will break down further," said John Canavan, market analyst with Stone & McCarthy Research Associates. "No one wants to miss out on the trade. It's a very strong safe-haven bid."

Meanwhile, crude futures reached a record $99.29 a barrel overnight, oil's first time above the $99-a-barrel mark. Prices retreated, though, despite the Energy Department's weekly inventory report that showed a 1.1-million-barrel decline in crude stocks. Oil slumped 74 cents to settle at $97.29 a barrel.

The dollar lost ground against the euro and the yen on fears that credit market woes and higher energy costs will cause economic growth in the U.S. to slow.

Both higher oil prices and a weakening dollar become more worrisome for traders in light of Tuesday's release of the minutes from the October

Federal Reserve

policy meeting.

"These problems are taking on the shape of a grinding panic, although it may be exaggerated," said Edgar Peters, chief market strategist with Pan Agora. "The market is pricing in a recession, and not just slowing consumer growth but falling consumer growth."

The minutes showed that Fed members regarded the interest rate cut last month as a "close call," but that the reduction was appropriate to help offset the effects of tighter financial conditions on the economic outlook.

"This is a real conundrum for the Fed as they have conflicting goals and only one instrument," said Peters. "It's times like this that monetary policy doesn't work as cleanly as they'd like. The Fed is facing a weaker economy and rising inflation."

More fears over the credit crisis were ignited after a

Reuters

report that Treasury Secretary Henry Paulson said he expects home default rates to climb higher in 2008.

Financial stocks slipped following the Paulson comments. AIG,

Goldman Sachs

(GS) - Get Report

,

Merrill Lynch

(MER)

,

Morgan Stanley

(MS) - Get Report

and

Bear Stearns

(BSC)

were all lower by 2.8% or more.

On the corporate news front, retail stocks were in focus amid several earnings releases.

Abercrombie & Fitch

(ANF) - Get Report

topped profit estimates by a penny, but revenue was a bit light. Shares rose $1.98, or 2.7%, to $74.77.

Shares of

Gap

(GPS) - Get Report

fell more than 6% as third-quarter revenue was flat and same-store sales fell 5%. Gap slid $1.25, or 6.1%, to $18.96.

Limited Brands

(LTD)

posted a 48% drop in third-quarter earnings due to weak fall sales. The retailer also offered holiday quarter guidance that was below the Thomson First Call consensus. Still, the stock gained 42 cents, or 2.4%, at $17.95.

After the last close,

Whole Foods Market

(WFMI)

posted a 15% decline in fiscal fourth-quarter earnings due to the acquisition of Wild Oats. Excluding items, the company matched expectations. Whole Foods closed down 82 cents, or 1.9%, at $41.43.

Teen apparel retailer

Hot Topic

(HOTT)

reported a decline in third-quarter profit, although results matched expectations. The company also backed its fourth-quarter guidance, which is ahead of the consensus forecast. Still, shares lost 51 cents, or 7%, to $6.80.

Also, the Labor Department said initial jobless claims fell by 11,000 last week to 330,000 claims, falling in line with estimates. The University of Michigan said its consumer sentiment index fell to a reading of 76.1 in November, slightly better than expectations, and the Conference Board said that leading economic indicators declined a greater-than-expected 0.5% in October.

Overseas markets were uniformly lower. In Asia, Hong Kong's Hang Seng plummeted 4.2%, and Japan's Nikkei 225 decreased by 2.5%. Among European bourses, London's FTSE 100 fell 2.5%, while Germany's Xetra Dax was down 1.5%.