NEW YORK - Stocks had their worst day of trading
since the Sept. 11, 2001, terrorist attacks Tuesday, briefly hurtling the Dow
Jones industrials down more than 500 points on a worldwide tide of concern that
the U.S. and Chinese economies are stumbling and that share prices have become
The steepness of the market's drop, as well as its global breadth, signaled a
possible correction after a long period of stable and steadily rising stock
markets, which had not been shaken by such a volatile day of trading in several
A 9 percent
slide in Chinese stocks, which came a day after investors sent Shanghai's
benchmark index to a record high close, set the tone for U.S. trading. The Dow
began the day falling sharply, and the decline accelerated throughout the course
of the session before stocks took a huge plunge in late afternoon as
computer-driven sell programs kicked in.
Stocks see biggest fall in 10
China's stock market suffered its steepest
daily fall in the past decade, with the benchmark Shanghai Composite
Index plunging nearly 9 percent to close at
The Dow fell 546.02, or 4.3 percent, to 12,086.06 before recovering some
ground in the last hour of trading to close down 416.02, or 3.29 percent, at
12,216.24, according to preliminary calculations. Because the worst of the
plunge took place after 2:30 p.m., the New York Stock Exchange's trading limits,
designed to halt such precipitous moves, were not activated.
The decline was the Dow's worst since Sept. 17, 2001, the first trading day
after the terror attacks, when the blue chips closed down 684.81, or 7.13
The drop hit every sector of stocks across the market. Riskier issues such as
small-cap and technology stocks suffered the biggest declines.
But analysts who have been expecting a pullback after a huge rally that began
last October and sent the Dow to a series of record highs, were unfazed by
"This corrective consolidation phase isn't just going to be one day, but we
don't believe this is going to be a bear market," said Bob Doll, BlackRock's
global chief investment officer of equities.
Some investors also tried to put Tuesday's slide into a longer-term
"All who invest should feel grateful that we've had a great run for the last
12 to 18 months," said Joel Kleinman, a Washington, D.C. attorney, adding that
he has learned to not read too much into any short-term ups and downs. "This is
another day in the market."
Still, traders' dwindling confidence was knocked down further by data showing
that the economy may be decelerating more than anticipated. A Commerce
Department report that orders for durable goods in January dropped by the
largest amount in three months exacerbated jitters about the direction of the
U.S. economy, just a day after former Federal Reserve Chairman Alan Greenspan
said the United States may be headed for a recession.
"It looks more and more like the economy is a slow growth economy," said
Michael Strauss, chief economist at Commonfund. "Moderate economic growth is
good ¡ª an abrupt stop in economic growth scares people."
The market had been expecting the government on Wednesday to revise its
estimate of fourth-quarter GDP growth down to an annual rate of about 2.3
percent from an initial forecast of 3.5 percent, and grew increasingly nervous
on Tuesday that the figure could come in even lower.
The housing market, which the Street had been hoping had bottomed out, also
looked far from recovery after a Standard & Poor's index indicated that
single-family home prices across the nation were flat in December. A later
report from the National Association of Realtors said existing home sales
climbed in January by the largest amount in two years, but the data didn't erase
housing-related concerns, as median home prices fell for a sixth straight month.
But a growing feeling that Wall Street, which has had a big run-up since
October, was due for a correction also played into Tuesday's decline.
"I think that the market was prepared to pull back. The constellation of
issues that were worrying the market came to a head," said Quincy Krosby, chief
investment strategist at The Hartford.
Just a week ago, the Dow had reached new closing and trading highs, rising as
high as 12,795.92.
The broader Standard & Poor's 500 index was down 50.33, or 3.47 percent,
at 1,399.04, and the tech-dominated Nasdaq composite index was off 96.65, or
3.86 percent, at 2,407.87.
A suicide bomber attack on the main U.S. military base in Afghanistan where
Vice President Dick Cheney was visiting also rattled the market.
China's stock market plummeted Tuesday from record highs as investors took
profits when concerns arose that the Chinese government may try to temper its
ballooning economy by raising interest rates again or reducing more of the money
available for lending.
"Corrections usually happen because of a catalyst, and this may be it," said
Ed Peters, chief investment officer at PanAgora Asset Management. "The move in
China was a surprise, and when a major market has a shock it ripples through the
rest of the market. With all the trade that goes on with China, there tends to
be a knee-jerk reaction with that kind of drop."
The Shanghai Composite Index tumbled 8.8 percent to close at 2,771.79, its
biggest decline since it fell 8.9 percent on Feb. 18, 1997. Since Chinese share
prices doubled last year as investors poured money into the market after the
completion of shareholding reforms, trading in Shanghai has been very volatile.
Hong Kong's benchmark Hang Seng Index dropped 1.8 percent, and Malaysia's
Kuala Lumpur Composite Index fell 2.8 percent. Japan's Nikkei stock average fell
a more moderate 0.52 percent, but European markets were rattled ¡ª Britain's FTSE
100 lost 2.31 percent, Germany's DAX index dropped 2.96 percent, and France's
CAC-40 fell 3.02 percent.
Bond prices shot higher as investors bought into the safe-haven Treasury
market, pushing the yield on the benchmark 10-year Treasury note down to 4.47
percent, its lowest level so far this year, from 4.63 percent late Monday. The
bond buying was sparked primarily by the durable goods orders, which the
Commerce Department said fell 7.8 percent, much more than what the market
The durable goods drop raised the chance of the Federal Reserve easing
interest rates later in the year ¡ª a possibility that makes the bond market an
attractive place to be right now.
The hope for slowing inflation could be dashed, though, if energy costs keep
rising. Oil prices initially fell Tuesday on worries that Chinese demand could
be dampened should its economy slow down, but later rose on escalating tensions
in the Middle East. Light, sweet crude for April delivery fell 62 cents a barrel
to $60.77 on the New York Mercantile Exchange.
The dollar slipped against other major currencies, while gold also fell.
The Dow has been climbing at a steady rate since last summer, but over the
past few trading sessions, stocks have pulled back on the worry that the market
is due for a correction. Many analysts have noted that the Dow hasn't seen a 2
percent decline in more than 120 sessions.
Data indicating a slower economy had recently been giving stocks a boost on
the hopes that the Fed will lower interest rates, which could reinvigorate
consumer spending and the struggling housing market. But the market may fall
further before that happens, analysts said.
"If in a week or two, the psychology in the U.S. market turns to the
realization that we're in a modest growth economy of 2 to 3 percent growth, that
will help temper inflation pressures going forward. If that perception evolves,
there's an increase in the likelihood that the Fed will be lowering rates rather
than raising rates. Structurally, it's a development that should be good for the
equity market, but it might be an event that unfolds after prices are lower,"
Declining issues outnumbered advancers by about 7 to 1 on the New York Stock
Exchange, where volume came to 2.38 billion shares.
The Russell 2000 index of smaller companies dropped 31.03, or 3.77 percent,