View Full Version : Dow Plunges More Than 400 Points

02-27-2007, 08:22 PM
Dow plunges more than 400 points
Reaction to global events puts index in negative territory for 2007


Carolyn Said, Chronicle Staff Writer
Tuesday, February 27, 2007

(02-27) 13:46 PST -- U.S. shares plummeted on Tuesday as jittery traders reacted to a spate of downbeat events around the globe, starting with a dramatic 9 percent plunge in China's stock market.

The carnage on Wall Street wiped out about $600 billion in market value, pushing the Dow Jones industrial average into negative territory for the year.

The Dow toppled 416.02, or 3.29 percent to close at 12,216.24. Earlier in the day, the Dow had plunged as much as 546.02, including a jaw-dropping freefall of almost 200 points in a single minute, but it recovered some ground in the final hour of trading. The Nasdaq composite index dropped 96.65 to 2,407.87, down 3.86 percent. The Standard & Poor's 500 Index fell 50.33 points to 1,399.04, off 3.47 percent.

"We've got our crash helmets on," said Richard Welty, chief investment officer at Welty/Solari Caital Advisors in Lafayette. "It's kind of nasty."

The first catalyst was the Chinese government's statement that it would crack down on stock speculation, which triggered an agonizing sell-off in that country's market. Chinese stock values had roughly doubled in the previous year.

At the same time, the U.S. reported a huge drop in orders for durable goods and the latest housing figures showed the real-estate market continuing to slump. Investors are also wary of recent sharp rises in sour loans in the subprime mortgage market, which provides home loans to borrowers with troubled credit records.

Compounding the financial anxiety, Federal Reserve Chairman Alan Greenspan, whose utterances are still treated with the same reverence as during his almost two-decades term, said in a speech Monday that it is "possible" the U.S. economy could slip into recession this year.

"On top of that someone tries to blow up (Vice President Dick) Cheney," said Scott Merritt, U.S. equity strategist with JP Morgan Asset Management in New York, referring to a suicide bombing in Afghanistan. "It was a banner bad news day."

Despite the rout, many analysts were sanguine that the damage would not last.

"Is it a blip?" said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities in New York. "Our view is the equity market will be up for the year. One day will not change that."

"My suspicion is that it won't last very long," said James Paulsen, chief investment strategist at Wells Capital Management in Minneapolis. The market has not been volatile lately, he said, so many traders were primed for that to change. "So many people were waiting on (increased volatility) that it magnifies it somewhat," he said. "They're waiting for any bad news so they can dump."

He and others said they don't think any of the downbeat events that triggered the sell-off reflect a significant change in fundamentals. "It's a feeding frenzy of fear," he said. "I don't see anything fundamentally horrible or wrong in the world anywhere at the moment. It's not like there has been a default or currency collapse so I think it could be fairly quickly resolved."

The Chinese stock market's plunge also triggered sell-offs in the United Kingdom, German and French markets, as well as Wall Street, all underscoring the increasingly interconnectedness of global markets.

"The psychology is, there is only one stock market across the world. It happens to be traded in a bunch of places but it moves increasingly in lockstep," Merritt said. But the Chinese market, which has been trading at historical heights, is overdue for a correction and the government's clampdown on speculation seemed appropriate, they said.

"China is an extremely frothy and risky market," Welty said. "The Chinese people are known to love to gamble. They recently were using credit cards to buy stocks and (a financial instrument similar to) equity lines of credit on their homes. Home mortgages are fairly new in China anyway. Using a line of credit on (your home) to buy stocks is not a good idea."

A gargantuan plunge of almost 200 points in the Dow that occurred around 3 p.m. Eastern time was likely triggered by so-called program trading, in which computers are set to automatically sell when prices reach a certain point, experts said.

"The bear put its claws out today and took a big slash in the hide of the bull," Merritt said. "This is an extreme example of what happens every day. Psychology drives the market in the short run while fundamentals drive it in the long run. This is a classic example of psychology at its most extreme."

02-27-2007, 10:43 PM
Dow plunges more than 400 points

that hurt.

02-28-2007, 09:34 AM
What they didn't tell you about Chinas market was that while it did plunge 9%, it was 65% higher than it was three months prior. Or did this article mention that and I missed it?

02-28-2007, 09:35 AM
AND supposedly it was not the biggest drop since 911... There was another big one in march of 2003.

02-28-2007, 12:09 PM
US Dollar index as of last night $0.794

02-28-2007, 01:24 PM
What is the normal average?

02-28-2007, 05:47 PM
Well lately the average has been around $.085+/-, but that number to me is alaming considering, just after WW2 that number was like $1.45 or even higher.

Honestly the number could be a lot lower because now everyone has to literally make an educated guess at what the US Dollar index is because the Federal Reserve no longer publishes the true numbers. I believe they stoped in 2003.