Furious selling spursAssociated Press
record one-day drops for
both the Dow and Nasdaq
NEW YORK -- The Dow Jones industrials and Nasdaq composite index both suffered record one-day point drops today as a new inflation report sparked furious selling that turned into panic as the session wore on.
The Dow plunged 616.23 points, or 5.6 percent, to close at 10,307.32. At its lowest point, it was off 722 points.
Today's drop surpassed the previous record one-day drop of 554.26 points on Oct. 27, 1997, but was far from a record decline in percentage terms. The blue-chip index is now down 12 percent from its Jan. 14 record of 11,722.98.
The Nasdaq plunged 355.51, or 9.7 percent, to close at 3,321.27.
That surpassed the previous record, a 349.15-point slide April 3, and was the second-biggest daily percentage decline after the 11.35 percent of Oct. 19, 1987.
The Nasdaq already had plunged 769 points, or 17 percent, in the first four days of this week. With the latest decline, the technology-focused average was off 34 percent from its March 10 record of 5,048.62.
A bear market is considered a sustained drop of more than 20 percent.
Trading volume exceeded 2 billion shares on the Nasdaq market and surpassed 1 billion shares on the New York Stock Exchange.
Analysts say the most fundamental reason for the drop in high-tech stocks is a growing sense that investors pushed those issues too far last year, when the Nasdaq rose an unprecedented 86 percent. The frenzy for technology stocks gave many young, unproven companies market values they did not yet deserve, analysts say.
"It was a momentum market on the way up; it is a momentum market on the way down," said Nick Sargen, an investment strategist for J.P. Morgan.
A government report this morning of an unexpectedly strong rise in consumer prices in March intensified a sense of uneasiness that has pulled stock prices lower all week.
The figures rekindled worries that the Federal Reserve not only would raise interest rates again at its upcoming policy-making meetings, but might be more aggressive in trying to cool down the economy.
Sargen said he expects the Fed to raise rates in May and June.
"The risk is the U.S. economy does not slow enough and the Fed has to raise rates in the second half of the year, in spite of the election. That is not priced into the market," he said.
While the inflation figures took their toll across the market, high-tech stocks continued to fall.
Fueling the selling were margin calls, in which investors are required to sell stocks they have bought using borrowed money, and plain-old panic.
Broader stock market indexes also tumbled today. The Standard & Poor's 500 fell 83.20, or 5.8 percent, to 1,357.31.
Declining issues outnumbered advancers by a 6-to-1 margin on the New York Stock Exchange, with 2,672 down, 434 up and 339 unchanged. NYSE volume totaled 1.25 billion shares as of 4 p.m., vs. 1.036 billion yesterday.
The market frenzy did not go unnoticed by Fed Chairman Alan Greenspan.
"During a financial crisis, risk aversion rises dramatically, and deliberate trading strategies are replaced by rising fear-induced disengagement from market activity," Greenspan said today.