the gates of hell>>>>>>>>>>>
William Hanley
National Post
Stock prices plummeted yesterday as fear flooded the market that rising inflation would force up interest rates. The Dow Jones industrial average fell through 10,000 for the first time since April before clawing its way back to close 266 points -- 2.6% -- down at 10,019.71
Wall Street suffered its worst week in 10 years on a day that rekindled memories of the huge October crashes of 1929 and 1987, and triggered speculation that the great bull market of the 1990s may now be on its knees.
"The gates of hell opened" as the Dow broke downward through 10,000, said Steven Nowack, a Toronto-based trader of American stocks. It hit a low of 9998.18, but scraped back a fraction of its losses as some investors picked over the wreckage looking for bargains.
The plunge in New York, which sucked down Canadian and European markets in its wake, appeared inevitable before the trading bell rang yesterday morning, after Alan Greenspan, chairman of the U.S. Federal Reserve, had issued an unmissable warning about high prices late on Thursday.
Mr. Greenspan, whose every word is pored over by market traders, said investors needed to remember that there was a big risk in owning stock. Investors responded accordingly and sold.
Markets were also spooked by producer price statistics out yesterday morning that heightened fears that inflation pressures could lead to higher interest rates.
Some economists worry that a big drop in stock prices could chill the U.S. economy, now in its ninth year of expansion. Consumers who see the value of their portfolios drop might be less inclined to spend.
"You've got overvaluation jitters, Fed jitters, bond jitters, dollar jitters, earnings jitters -- jitters everywhere," said Jim Mountain of Scotia Capital Markets in Toronto. "It could get ugly here."
More coverage, Pages C1, C2, C3, C5, D12
Investors are especially susceptible to the October jitters that have surfaced each year since this greatest bull market in stocks began in earnest in 1995. In October, 1987, the market lost almost a quarter of its value in one savage session now dubbed Black Monday. In October, 1929, the Great Crash marked the start of the Great Depression.
Fridays in October are scary days for market investors, many of whom know as well as any professional analyst that they are often a preamble to worse falls the following Monday. The worst point loss by the Dow, a 554-point lurch on Oct. 27, 1997, and the worst percentage loss, the 23% plunge on Oct. 19, 1987, occurred on Mondays after investors spent the weekend digesting the full awfulness of declines that had battered their portfolios the previous Friday.
"Let's get October behind us," said Gerald Vincent of investment counsellors Davis-Rea Ltd. in Toronto. "Bring on November."
Mr. Vincent and many other market professionals are telling clients not to panic and to "keep their powder dry" until next month, when they will be able to snap up bargains.
Mr. Nowack expects the market to rally strongly within the next three to five trading sessions, then retest the 10,000 barrier again on the way down. If the market fails to hold above 10,000 then, he said, a bear market that could cut stock prices by more than 20% would be a serious danger.
The Dow, which hit a record close of 11,326 on Aug. 25 after brushing aside the 10,000 barrier in late March, is now 11.5% below its peak. The Dow fell 231 points on Tuesday and 185 on Wednesday.
The Standard & Poor's 500-stock index, which is considered the best measure on Wall Street, ended the week 6.6% lower than its opening point last Monday.
Canadian share prices sagged, but they escaped the worst of the carnage. The Toronto Stock Exchange 300 composite index dropped 85.21, or 1.2%, to 6884.44.
Not all financial markets fell. Many investors who sold equities put the proceeds into the bond market. Bonds, particularly those issued by the American government, are regarded as safe havens during the sort of financial hurricane that whipped through the markets yesterday. The 30-year U.S. Treasury bond, a benchmark security, rose almost a full point. Bond yields have been at two-year highs because of fears that rising inflation would force the Federal Reserve to raise interest rates further. Rising interest rates make it more expensive to borrow money, which can crimp consumer spending by pushing mortgage rates higher. Rising rates also increase interest costs to companies, eroding earnings, leaving less for shareholders and thus making stocks less attractive.
In his speech on Thursday night, Mr. Greenspan voiced concern that investors' expectations about returns on stocks are too high after fours years in which they have averaged a 28% capital growth. One trader said the Federal Reserve chairman will continue to express caution openly about the market, and that could keep stocks down.
"You never want to bet against him. He controls all the money and knows all the rules," the trader added. |
