Wall St caught in a perfect storm
By James Quinn in New York and Ambrose Evans-Pritchard in London
Last Updated: 1:58am BST 20/10/2007
Dow Jones plunges 367 points in an eerie repeat of October 1987 crash
The Dow Jones plunged almost 370 points in a perfect storm of surging oil costs, a sliding dollar, and fresh fears of paralysis in the credit markets.
Twenty years to the day since Black Monday, when the Dow slumped 508 points in a day, Wall Street was rocked by rumours of defaults and heightened fears that the US economy may be heading for a recession.
There were frantic scenes in the last hour of trading on Wall Street yesterday, as traders on the floor of the New York Stock Exchange fell over one another to place sell orders in all of America's biggest companies.
The Dow finally closed down 366.94 points at 13522.02 recording its biggest one-day loss since August 9, the start of this summer's credit crisis.
In total, 1.75bn shares changed hands on the NYSE, 1.65bn were sell orders. The panic selling was compounded by the unwinding of options.
The broader S&P 500 index fell 74.15 points to 2725.16, while the FTSE 100 in London closed down 81.5 points at 6527.90. It is expected to open lower on Monday morning, leaving traders with a nervous weekend.
advertisement"Nobody wants to own stocks. Everybody [sold] into the weekend," said Ryan Detrick, chief technical strategist at Schaffer's Investment Research. "The overall concern for the financial and credit markets has taken over… People realised that these third-quarter earnings haven't been what we wanted."
Jerry Webman, chief economist at Oppenheimer Funds was more realistic, however.
"We're like a bunch of adolescents right now. Last week we got some good news and we're happy. Now we're all sullen and down in the dumps."
The bad news included poor results from a number of America's largest companies which reported yesterday, including machinery group Caterpillar, which cut its profit forecast for this year, fearing housing woes would weigh on sales. US housing starts fell 10.3pc in September, the lowest in 14 years.
Bill Strazzullo, partner and chief market strategist at Bell Curve Trading in Boston, said: "It's pretty ugly. A company like Caterpillar should be a poster child for global growth and benefits of the weak dollar. It makes you question: is global growth really that strong? Has the earnings kick from the weak dollar played itself out?"
Meanwhile banking group Wachovia became the latest casualty of the credit crunch, writing down $1.3bn in bad loans.
On the currency markets, there was further pressure against the dollar, with the euro rising to a record $1.4318 against the greenback and the global dollar index plumbed fresh depths amid concerns that the worsening US housing slump will lead to an exodus of foreign investors.
Oil hit an all-time high of $90.02 a barrel on supply shortages and tensions on Turkey's border with Iraq but later fell back.
Eric Chaney, an economist at Morgan Stanley, said prices may reach $100 but warned that the market had become a speculative bubble. "Prices have overshot fundamentals and are likely to come down sharply," he said.
Fed chairman Ben Bernanke warned on Thursday that "considerable strains remain" in the financial markets. He said cited a risk that "housing weakness might spill over to other parts of the economy".
He left no doubt that the Fed is now seriously worried about the severity of the downturn. "Intuition suggests that stronger action by the central bank may be warranted to prevent particularly costly outcomes," he said.
Credit markets have priced in a 70pc chance of a rate cut on October 31, an abrupt change since last week.
It is unclear, however, whether the Fed can act as aggressively as it might wish, given stubborn inflation now running at 2.8pc and concerns that the dollar slide could get out of hand if managed badly by Washington.
This is hauntingly similar to events in October 1987, just before Black Monday.
lets hope it will not be similar to 1927
