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Dow Plunges 387 on Subprime Worries
MoneyNews
Thursday, Aug. 9, 2007
NEW YORK -- Wall Street plunged again Thursday after a French bank said it
was freezing three funds that invested in U.S. subprime mortgages because it
was unable to properly value their assets. The Dow Jones industrials
extended its series of triple-digit swings, this time falling more than 380
points.
The announcement by BNP Paribas raised the specter of a widening impact of
U.S. credit market problems. The idea that anyone -institutions, investors,
companies, individuals - can't get money when they need it unnerved a stock
market that has suffered through weeks of volatility triggered by concerns
about tight credit and bad subprime mortgages.
A move by the European Central Bank to provide more cash to money markets
intensified Wall Street's angst. Although the bank's loan of more than $130
billion in overnight funds to banks at a low rate of 4 percent was intended
to calm investors, Wall Street saw it as confirmation of the credit markets'
problems. It was the ECB's biggest injection ever.
The Federal Reserve added a larger-than-normal $24 billion in temporary
reserves to the U.S. banking system.
The concerns that arose in Europe and spilled onto Wall Street underscored
the potential worldwide ramifications of an implosion of some subprime loans
and perhaps also weakened arguments that strength in the global economy
could help keep profit growth going in the U.S. among large companies that
do business overseas.
The ECB's injection of money into the system is an unprecedented move, said
Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co., adding
that it shows that problems in subprime lending are, in fact, spilling into
the general economy.
"This is a mini-panic," he said. "All the things that had been denied up
until this point are unraveling. On top of this, retail sales were mediocre,
which shows that indeed, the housing collapse is affecting the consumer."
Retailers released July sales figures Thursday that were overall
disappointing.
The Fed didn't soften its stance on inflation after leaving short-term
interest rates unchanged Tuesday. However, the renewed credit market
concerns spurred bond traders who bet on its next move to predict early in
the session that the Fed will cut rates at its meeting next month. Before
Thursday, traders had bet on a 1 in 4 chance of such a cut.
According to preliminary calculations, the Dow fell 387.18, or 2.83 percent,
to 13,470.68. It was the Dow's biggest point and percentage drop since a
market pullback on Feb. 27., that owed in part to concerns about subprime
loans.
Bonds rose sharply as investors again sought the relative safety of
Treasurys, pushing down the yield on the benchmark 10-year note to 4.79
percent from 4.89 percent late Wednesday.
The broader Standard & Poor's 500 index fell 44.40, or 2.96 percent, to
1,453.09. The Nasdaq composite index fell 56.49, or 2.16 percent, to
2,556.49.
Dow Plunges 387 on Subprime Worries
MoneyNews
Thursday, Aug. 9, 2007
NEW YORK -- Wall Street plunged again Thursday after a French bank said it
was freezing three funds that invested in U.S. subprime mortgages because it
was unable to properly value their assets. The Dow Jones industrials
extended its series of triple-digit swings, this time falling more than 380
points.
The announcement by BNP Paribas raised the specter of a widening impact of
U.S. credit market problems. The idea that anyone -institutions, investors,
companies, individuals - can't get money when they need it unnerved a stock
market that has suffered through weeks of volatility triggered by concerns
about tight credit and bad subprime mortgages.
A move by the European Central Bank to provide more cash to money markets
intensified Wall Street's angst. Although the bank's loan of more than $130
billion in overnight funds to banks at a low rate of 4 percent was intended
to calm investors, Wall Street saw it as confirmation of the credit markets'
problems. It was the ECB's biggest injection ever.
The Federal Reserve added a larger-than-normal $24 billion in temporary
reserves to the U.S. banking system.
The concerns that arose in Europe and spilled onto Wall Street underscored
the potential worldwide ramifications of an implosion of some subprime loans
and perhaps also weakened arguments that strength in the global economy
could help keep profit growth going in the U.S. among large companies that
do business overseas.
The ECB's injection of money into the system is an unprecedented move, said
Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co., adding
that it shows that problems in subprime lending are, in fact, spilling into
the general economy.
"This is a mini-panic," he said. "All the things that had been denied up
until this point are unraveling. On top of this, retail sales were mediocre,
which shows that indeed, the housing collapse is affecting the consumer."
Retailers released July sales figures Thursday that were overall
disappointing.
The Fed didn't soften its stance on inflation after leaving short-term
interest rates unchanged Tuesday. However, the renewed credit market
concerns spurred bond traders who bet on its next move to predict early in
the session that the Fed will cut rates at its meeting next month. Before
Thursday, traders had bet on a 1 in 4 chance of such a cut.
According to preliminary calculations, the Dow fell 387.18, or 2.83 percent,
to 13,470.68. It was the Dow's biggest point and percentage drop since a
market pullback on Feb. 27., that owed in part to concerns about subprime
loans.
Bonds rose sharply as investors again sought the relative safety of
Treasurys, pushing down the yield on the benchmark 10-year note to 4.79
percent from 4.89 percent late Wednesday.
The broader Standard & Poor's 500 index fell 44.40, or 2.96 percent, to
1,453.09. The Nasdaq composite index fell 56.49, or 2.16 percent, to
2,556.49.
