Rollercoaster ride on Wall Street

October 10, 2008 5:59:25 PM PDT
Here's how bad it has gotten: The Dow Jones industrials had the worst week in their 112-year history - but it was almost worse. "I view it as a victory that we only finished down 100," said Anton Schutz, president of Mendon Capital Advisors.

Actually it was 128, an unprecedented seventh straight triple-digit loss, but that was modest on a roller coaster day on Wall Street:
- Down 696 in the first 15 minutes.

- Up more than 100 before the first hour was over.

- Down between 300 and 600 most of the day.

And that was before an even wilder final hour that saw the Dow swing up as much as 322 and then dive again, changing 50 points or more within seconds as the closing bell loomed.

It was a fitting finale to a frantic week for a market seemingly trying to figure out whether to continue its free fall or take some tentative steps toward a possible recovery.

"Nobody wants to miss the bottom," Schutz said.

The question was whether the bottom is in sight.

The Dow now has lost early 2,400 points, or 22.1 percent, over the last eight sessions, its longest losing streak since after the 9/11 terrorist attacks in 2001.

For the week, it lost 1,874.19 points, or 18.2 percent - the worst on record in both point and percentage terms. That eclipsed the week that ended July 22, 1933, which saw a 17 percent drop - and back then, during the Great Depression, there were six trading days in a week.

The paper loss for the week was $2.4 trillion, as measured by the Dow Jones Wilshire 5000 index, pushing the losses over past year to $8.4 trillion.

The Standard & Poor's 500 index, the indicator most watched by market professionals, posted its worst weekly run since 1933.

Friday's loss means the Dow is down 5,713 points, or 40.3 percent, since reaching a record high close of 14,164.53 a year ago, on Oct. 9, 2007. The S&P 500, which reached its high of 1,565.15 the same day, is down 665.90, or 42.5 percent.

It's been the worst run for the Dow since it lost 45 percent in the nearly two-year bear market that ended in December 1974.

There were some hopeful signs, though.

Some investors believe the market is near a bottom. On Thursday, selling accelerated in the last hour of trading. The Dow was down 221 points at 3 p.m. but closed down 679 points an hour later. On Friday, the Dow was down 468 points with an hour to go but rocketed 790 points and was up 322 points just after 3:30.

The Russell 2000 index, which tracks the movements of smaller company stocks, had a 4.66 percent gain Friday; small-cap stocks are often first on investors' shopping lists when they think a market turnaround is at hand.

The Nasdaq composite index rose 4.39, or 0.27 percent, to 1,649.51, to cut its losses for the week to 297.88, or 15.3 percent.

Some investors may have been placing bets ahead of the weekend meeting of officials from the Group of Seven nations, who gathered in Washington to discuss the economic meltdown. One of the potential remedies expected to be reviewed at the meeting is for governments to guarantee lending among banks.

"Everyone is hoping for really good news that can invigorate some buying and break this credit freeze, but your guess is as good as mine as to whether that will happen. I think people are desperate for action," said Jon Biele, head of capital markets at Cowen & Co. "It truly is remarkable to watch what's happening."

Still, Friday's widely mixed finish was proof that Wall Street still has a long list of troubles, and trading is likely to remain volatile when the market reopens on Monday.

"This kind of volatility in the market tells you that there are huge disagreements among investors about what the fundamentals are, about what the outlook is," said Ethan Harris, managing director and chief U.S. economist at Barclays PLC.

Investors have shuddered the past month over a credit market that remains frozen, posing a threat to the economy by making it harder and costlier for businesses and consumers to get a loan. But Friday's gainers included financial stocks, the ones most decimated by the credit crisis.

Harris said policymakers likely will continue to do what is needed to revive the credit markets. Actions taken so far by central banks, among them the Federal Reserve, have included increased lending and interest rate cuts.

"The deeper problem is not the stock market drop but the freezing up of the credit markets and that's the root problem and they have to keep applying the antifreeze until it works," Harris said.

The major indexes' sharp swings Friday were likely exacerbated by the computer-driven "buy" and "sell" orders that kicked in when prices fell far enough.

"Fear has been running rampant all over the Street. Fear and greed, that's what rules the Street. I think the carcass has been stripped to the bone," said Dave Henderson, a floor trader on the New York Stock Exchange for Raven Securities Corp. "The mood, it swings with the market. When we went positive the euphoria down there was awesome. It's like at a football game."

On Friday, the Dow fell 128.00, or 1.49 percent, to 8,451.49. At its low point of the session, the Dow was down 696.68 at 7,882.51, just 60 points above its low in Wall Street's last bear market, 7,286.27, reached Oct. 9, 2002. It crossed the line between gains and losses 32 times during the session.

The Dow rebounded from a low of 7,882.51 for the day - the worst trading level since March 17, 2003. Still, its close was the lowest since April 25, 2003.

Broader stock indicators were mixed Friday.

The S&P 500 index fell 10.70, or 1.18 percent, to 899.22. The 18.2 percent drop for the week was the S&P's steepest decline since the week ending May 21, 1933; its worst loss was in 1929, when it fell 19.9 percent.

The Nasdaq composite index rose 4.39, or 0.27 percent, to 1,649.51.

The Russell 2000 rose 23.28, or 4.66 percent, to 522.48.

Decliners led advancers 2-to-1 on the New York Stock Exchange, where consolidated volume came to a record 11.2 billion shares compared with 8.14 billion traded Thursday.

Most major central banks around the world slashed interest rates this week after continuing problems in the credit market triggered concerns that banks will run out of money. Analysts have described the mood on trading floors this week as panicked at times, with investors bailing out of investments on fears there is no end in sight to the financial carnage.

A stream of selling forced exchanges in Austria, Russia and Indonesia to suspend trading, and those that remained opened were hammered. The rout in Australian markets caused traders there to call it "Black Friday."

European stocks sank Friday, with Britain's FTSE-100 falling 8.85 percent, German's DAX declining 7.01 percent, and France's CAC-40 ending down 7.73 percent. In Asia, the collapse of Japan's Yamato Life Insurance caused already nervous investors to pull even more money out of the market - the Nikkei 225 fell 9.6 percent.