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Dow industrials crash amid global market rout

Dow industrials crash amid global market rout
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First Published: Wed, Feb 28 2007. 10 03 AM IST
Updated: Wed, Feb 28 2007. 10 03 AM IST
NEW YORK: Wall Street shares went into a tailspin on Tuesday following steep declines in global markets, with the main blue-chip Dow Jones index plunging 400 points or 3.17 % at the final bell.
The Dow Jones Industrial Average tumbled 416.02 points (3.29 %) to close at 12,216.24 after plummeting as many as 540 points moments earlier in a highly volatile session marking the worst day on Wall Street since 2001.
The main blue-chip index appeared to plunge some 250 points in a matter of minutes in late afternoon deals.
Analysts attributed the move to computerized programme trades, but a Dow Jones spokeswoman said later that a systems glitch caused a delay in market data making the drop appear more abrupt.
Sybille Reitz, spokesman for Dow Jones indexes, said the delay started around 2:00 pm (1900 GMT) because of “extraordinarily heavy trading volume.”
This caused a delay in the Dow Jones data systems and as a result “the calculation of the Dow temporarily lagged behind the market’s decline,” she said.
“And after we identified that delay we switched over to the backup system. And the result of that was the rapid catchup of the value of the Dow” at around 3:00 pm.
“That’s why we saw an immediate drop rather than a drop in 15 or 20 minutes,” she noted.
The tech-heavy Nasdaq composite sank 96.65 points (3.86 %) to 2,407.87 and the broad-market Standard and Poor’s 500 index lost 50.33 points (3.47 %) to finish at 1,399.04.
The sharp slide came amid a tumble in global markets including an 8.8 % drop in Shanghai’s main index as fears about an economic slowdown in the United States and the end of the Chinese economic bubble triggered a global wave of selling.
Analysts at Briefing.com called the action “one of the worst days for stocks in recent memory.”
“The sell-off in China continues to have a profound effect on stocks across the board, since the largest unwinding in the Shanghai Composite Index since 1997 leaves investors questioning the sustainability of stock gains everywhere,” the analysts said in a note to clients.
Asia was dragged down by a dive in the Shanghai stock market, Wall Street slumped, and the main European indices showed falls of between two and three % on average at the close.
Metal and mining stocks were particularly hard hit because of concerns about demand from China, which has been the driving force behind record prices for raw materials in recent years.
Comments from former Federal Reserve chairman Alan Greenspan and rising tension about Iran’s nuclear program also served to undermine investor confidence.
Greenspan had warned on Monday that the US economy had been expanding since 2001 and that there were signs that the current economic cycle was coming to an end.
Eugene Peroni at Claymore Securities said there was “a mild panic, maybe a climactic event,” that triggered the sharp market declines.
Peroni said however that the US selloff may have brought the long-awaited “correction” to Wall Street, which observers say is often needed to take some of the speculative fervour out of the market.
“I think this will be beneficial for the long term,” he said.
“But I don’t think it will be a one-day wonder. It will continue over the short run and there will be some aftertremors. There will be a period through the end of March where we may see a saw-tooth pattern to the market.”
Data Problems
Dow Jones & Co. said its computers were responsible for the sudden drop in the Dow Jones Industrial Average about an hour before the close of trading today because they failed to keep up with stock trades. The New York Stock Exchange and Nasdaq Stock Market Inc. also reported problems.
The Dow average plummeted 178 points in a single minute just before 3 p.m. New York time. That’s when Dow Jones switched to a another data server, which instantly calculated the effect of trades done earlier in the day Dow Jones spokeswoman Sybille Reitz said.
“The extraordinary heavy trading volume caused a delay in our Dow Jones Industrial Average data,” Reitz said. “As we identified the problem we switched over to a backup system and the result was a rapid catch up in the public value for the Dow.”
Stocks lurched lower after the sudden drop, driving the Dow average down as much as 546.2 points, or 4.3 %, and leading the market to its biggest single-day rout since the Sept. 11 terrorist attacks. The malfunction in the oldest, most established benchmark for U.S. stock prices shows how a technical fault can worsen a market decline.
“I don’t think it would have been as bad had there not been some technology issues,” said Kenneth Polcari, a managing director at ICAP Plc’s equities unit who has traded at the New York Stock Exchange for more than 25 years “The technology issues created some anxiety, which exacerbated the market’s move.”
NYSE, Nasdaq Delays
The New York Stock Exchange and rival Nasdaq were less specific about the nature of difficulties they incurred.
“Toward the end of the trading today, we experienced intermittent delays and we are assessing the situation,” NYSE spokesman Eric Ryan said.
Nasdaq sent an alert to traders at 2:56 p.m. reporting slow responses to stock orders sent to the NYSE. Less than an hour later, Nasdaq, which last year combined three trading systems into one, reported delays in distributing some market data, according a notice on its Web site.
“Our systems performed well in the face of the first major volume day for our single-book trading platform,” Nasdaq spokeswoman Bethany Sherman said.
Rob Harrington, head of cash equities trading at UBS AG in Stamford, Connecticut, said he couldn’t understand why prices seemed to be falling so fast.
“My first response was, ‘Is that an error? Did someone hit the wrong button?”’ Harrington said.
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First Published: Wed, Feb 28 2007. 10 03 AM IST
More Topics: Money Matters | Global Markets |