Stock losses deepen as investors worry
NEW YORK » Stocks dropped for the second straight session yesterday, with the Dow Jones industrial average falling to its worst close since March 9. Global markets also sold off as inflation fears worsened.
The Dow lost more than 110 points in midday trading before narrowing its loss later in the session. The index dropped nearly 200 points Monday after Federal Reserve Chairman Ben Bernanke spooked Wall Street by saying that the central bank will remain vigilant in fighting inflation.
Investors have been hoping the Fed would stop increasing short-term interest rates after 16 hikes; the nation's benchmark rate now stands at 5 percent. However, Bernanke's comments in recent weeks have repeatedly shaken investors and sent stocks tumbling.
"Bernanke came in with this reputation as a great communicator," said John Caldwell, chief investment strategist for McDonald Financial Group, part of Cleveland-based KeyCorp. "Most of us would choose to go back to the general confusion (former Fed Chairman Alan) Greenspan created."
The Dow fell 46.58, or 0.42 percent, to 11,002.14. The index tumbled 199.15 points, or 1.77 percent, during Monday's session.
Broader stock indicators were also lower. The Standard & Poor's 500 index fell 1.44, or 0.11 percent, to 1,263.85, and the Nasdaq composite fell 6.84, or 0.32 percent, to 2,162.78.
Declining issues led advancers by more than 2 to 1 on the New York Stock Exchange.
Stocks in most Asian markets fell hard yesterday, with Tokyo's Nikkei 225 index down 1.81 percent, while India's benchmark index fell 2.51 percent.
Wall Street's decline comes as investors fret about Bernanke's communication skills. For instance, CNBC reported on May 1 that Bernanke believed investors had misinterpreted his recent congressional remarks as an indication the Fed was nearly done raising rates. Stocks -- which had been up for most of that day -- slumped immediately and Bernanke later said he regretted the remark.
"(S)eeds of confusion continue to be sown by this new Fed, and there is no doubt a risk that we will see a policy misstep at the end of June," wrote David A. Rosenberg, Merrill Lynch's North American economist, in a note to clients yesterday.
The fear among investors is that an over-vigilant Fed will raise rates too far, cooling the economy to the point of recession. Bernanke's communication stumbles have only served to make the market more nervous.