Sell-off escalates

Trade is heavy as hope for quick rescue of automakers dims

Associated Press

November 21, 2008

NEW YORK - Stocks plunged for a second straight day yesterday - falling to levels not seen in at least five years - as financial and energy stocks tumbled while demand for the safety of government debt spiked.

Stocks saw the most intense selling late in the session after hopes faded that lawmakers would quickly assemble an aid package for U.S. automakers and as the Standard & Poor's 500 index broke through lows established in 2002. That breach of a key technical threshold sent a shudder through the market and touched off further selling.

The Standard & Poor's 500 fell 6.7 percent to its lowest close since April 1997.

The Dow Jones industrial average fell 444.99 points, or 5.56 percent, to 7,552.29, its lowest close since March 12, 2003, and the biggest percentage drop since Oct. 22.

The decline brings the Dow's two-day drop to 873 points, or 10.6 percent, its worst two-day percentage loss since October 1987.

Financial stocks plunged on worries that the government's financial rescue won't be sufficient to cover banks' losses. Meanwhile, a sharp drop in oil prices weighed heavily on energy companies.

Yesterday's pullback came amid heavy volume. That was a welcome sign for some investors, who are looking for the market to experience a cathartic sell-off that could lay the groundwork for a recovery. Heavier volume can signal that investors are scared enough to sell rather than simply sit on the sidelines, which can result in relatively light volume.

Observers said the selling highlighted the entrenched pessimism about economic prospects.

"Unrelenting gloom has taken over the markets," said Dana Johnson, chief economist at Comerica Inc. "The economic news, the concerns about some major financial institutions, the concerns about the auto sector, earnings reports - everything is coming out in a way that is just provoking a massive selling in the stock market.

"Back in October we were looking at a potential catastrophic meltdown of the credit markets, and that didn't happen. But that doesn't mean tremendous damage hasn't been done to the economy."

Broader stock indicators also suffered. The Standard & Poor's 500 fell 54.14, or 6.71 percent, to 752.44, below the closing low of 776.76 logged on Oct. 9, 2002, to its lowest close since April 14, 1997.

The Nasdaq composite index fell 70.30, or 5.07 percent, to 1,316.12.

Jon Biele, head of capital markets at Cowen & Co., said investors are bracing for more bad news.

"The view on the floor is nobody is sure what the next stop is," he said. "I think the market is expecting another shoe to drop."

"Some people think this is the capitulation we've been waiting for," he said. "All along we've been hoping for a real violent sell-off, and the end of the day today was a pretty dramatic move."

Bond prices showed stunning advances as investors sought the safety of government debt. Treasury yields hit multiyear lows as fears for the auto industry make it hard for credit markets to function.

The yield on the benchmark 10-year Treasury note sank to 3.0 percent, its lowest level since June 2003. The 30-year bond's yield fell to 3.46 percent - the lowest since the government started issuing the bond in 1977. The yield on the two-year note, meanwhile, fell to 0.97 percent - the lowest since 1947, according to Global Financial Data in Los Angeles.

Stocks rose briefly during the session on hopes that Washington would agree to help Detroit's Big Three. But Democratic leaders in Congress delayed a vote on bailing out the auto industry until December and are asking General Motors, Ford and Chrsyler to present a plan to show how the $25 billion cash injection they have sought would be used.

Investors who have been groping for a bottom to the yearlong market rout are worried that Washington's disagreements over whether to bail out the auto industry could lead to bankruptcies that would cascade into other industries and throw perhaps millions of people out of work.

Automakers advanced on hopes that a deal might eventually be reached. General Motors Corp. rose 9 cents, or 3.2 percent, to $2.88. Ford Motor Co. rose 13 cents, or 10.3 percent, to $1.39.

Chrysler LLC isn't publicly traded.

Analysts said the worries about the automakers are only one of many concerns for the market and the uncertainty about the overall economy was battering stocks.