NEW YORK - Wall Street suffered its second-biggest
plunge of the year Thursday, leading global markets lower as investors fled
stocks amid increasing uneasiness about the mortgage and corporate lending
markets. The Dow Jones industrials fell more than 350 points, while Treasury
yields plunged as investors moved money into bonds.
Investors who had been able to shrug off discomfort about subprime mortgage
problems and a more difficult environment for corporate borrowing appeared to
finally succumb to those concerns. The Dow's drop is the biggest since it
plummeted 416 points on Feb. 27 after a nearly 10 percent decline in Chinese
Traders assemble at a post on the floor of the New York Stock
Exchange, Thursday, July 26, 2007. Wall Street fell sharply Thursday,
extending its weeks-long streak of volatility after disappointing home
sales figures added to investors' increasing uneasiness about the mortgage
and corporate lending markets.[AP]
Feeding the selling were concerns that higher corporate borrowing costs will
curb the rapid pace of takeovers that have driven major indexes this year.
Investors also feared the sluggish environment for home sales and continued
defaults in subprime loans would spur debt defaults and weigh on corporate
"Worries that have been out there for the past couple of years are coming to
a head right now," said investment strategist Edward Yardeni, president of
Yardeni Research Inc. "It's show time."
Thursday's trading was the latest in a series of frenetic sessions over the
past month -- many accompanied by triple-digit swings in the Dow -- as
investors sold on worries about the subprime fallout or bought on optimism that
there wouldn't be any widespread problems caused by mortgage failures. Many
analysts have described the back-and-forth trading as overwrought and based more
on gut emotion than careful consideration of market and economic fundamentals.
Perhaps the clearest sign that investors had abandoned caution was a July 12
rally that hurtled the Dow up 283 points -- without any discernible
catalyst and before Wall Street had had a chance to see the bulk of
second-quarter earnings. When those earnings reports started flowing in, many
turned out to be a sobering influence on the market, including news from
Countrywide Financial Corp.
So, while the Dow passed 14,000 for the first time last week, investors
obviously weren't feeling Thursday that such a lofty level was justified. In mid
afternoon trading, the Dow plunged 351.41, or 2.55 percent, to 13,433.66, near
its low of the session.
The Standard & Poor's 500 index dropped 43.91, or 2.89 percent, to
1,474.18 and the Nasdaq composite index tumbled 72.29, or 2.73 percent, to
2,575.88. The Russell 2000 index of smaller companies fell 28.96, or 3.56
percent, to 783.54.
The declines triggered a global selloff in stocks, causing minor losses in
Europe to accelerate rapidly along with the Dow's drop. In Europe, Britain's
FTSE 100 closed down 3.15 percent, Germany's DAX index dropped 2.39 percent, and
France's CAC-40 fell 2.78 percent.
Markets were closed in Asia before the rout got under way. Japan's Nikke
stock average closed up 0.88 percent and the Shanghai stock market composite
added 0.52 percent to an all-time high.
Investors' global flight from equities was a boon for US Treasurys as traders
shifted cash into safer investments. Bonds rallied, with the yield on the
benchmark 10-year Treasury note falling to 4.80 percent from 4.90 percent late
Wall Street also found more immediate reasons to sell during the session.
Among them was disappointing home sales figures released by the Commerce
Department, which further eroded confidence in the housing industry's ability to
The department reported that sales of new homes fell 6.6 percent last month
to a seasonally adjusted annual rate of 834,000 units, more than triple what had
been expected and the largest percentage drop since sales fell by 12.7 percent
This boosted anxiety after quarterly results from home builders including
Pulte Homes Inc. and D.R. Horton Inc. were squeezed by a sluggish environment
from home sales and continued defaults in subprime loans.
"Wall Street continues to walk a wall of worry," said Ryan Larson, a senior
equity trader at Voyageur Asset Management. "The housing market continues to be
a story, and nobody knows when it will rebound. But, the real concerns are about
credit and oil pushing higher."
Also stunting stocks was a disappointing durable goods report released by the
Commerce Department. Though sales of big-ticket items increased by 1.4 percent
last month to a seasonally adjusted $217.07 billion, durable goods excluding
transportation equipment had an unexpected drop.
The Labor Department reported that jobless claims fell by 2,000 to 301,000 in
the week ended July 21, slightly better than analysts' expectations.
Investors also reacted negatively as oil prices climbed to almost $77 per
barrel during the session, stoking the market's worries about inflation.
However, crude pared gains in the afternoon when a barrel of light sweet crude
fell 75 cents at $75.13.
It all led to a frantic day for stock traders.
"It has been pretty volatile as of late, but now fears about a credit crunch
are spreading more than they have in the past -- and that's causing this
drop," said Matt Kelmon, portfolio manager of the Kelmoore Strategy Funds.
"That's hurting the financials, and now energy companies are joining the party
because oil is so high. They make up a large part of the S&P 500."
Wall Street, now at the peak of second-quarter earnings season, has been
extremely volatile lately -- a signature of typically slower trading that
has been heightened by record runs in major market indexes. On Thursday,
declining issues beat advancers by a 15 to 1 basis on the New York Stock
Exchange, where volume came to almost 1.54 billion shares.
Ford Motor rose 22 cents, or 2.9 percent, to $8.20 after it reported
cost-cutting and a turnaround in its core automotive operations pushed its
second-quarter to a profit. The company had posted seven quarters of losses as
it grappled with sluggish sales and a major overhaul of its operations.
Dow component Exxon Mobil's disappointing second-quarter results also weighed
on the overall market, even as energy prices continued to spike. Shares fell
$4.30, or 4.6 percent, to $88.49 after it reported a smaller profit than
The Nasdaq's losses weren't as steep as other major indexes during the
session due to strength from Apple Inc., which surged $7.82, or 5.7 percent, to
$145.08. The iPod and iPhone maker's earnings easily surpassed Wall Street
projections late Wednesday due to strong sales from its computer offerings.
Home builders sank after several disappointing reports. D.R. Horton fell 48
cents, or 2.8 percent, to $17 after it posted a fiscal third-quarter loss on
charges to write down the value of unsold inventory and deposits on land.
Pulte fell 99 cents, or 5 percent, to $19.68 after it posted a second-quarter
loss amid the struggling housing market.
Dow Chemical Co. dropped $2.28, or 5 percent, to $43.39 after second-quarter
results missed expectations. The company said profit during the quarter rose 2
percent as strong international growth offset weakness in the North American
housing and automotive sectors.