The Dow Jones industrial average plunged more than 200 points Friday, wiping out its January gains in the stock market’s worst day in three years.
The sell-off was blamed on disappointing corporate profit news and higher crude oil prices.
The setback in the blue-chip index, which fell 213.32 points to 10,667.39, came just two weeks after the Dow closed above 11,000 for the first time in more than four years.
Other major stock indexes had also surged in the opening week of the new year. And that, some strategists believe, was the problem that came back to haunt the market Friday.
“We got off to such a raging start this year, it was hard to believe it was sustainable,” Atlanta strategist Dorsey Farr said Friday. “There was very little that warranted the huge run-up in prices coming out of the gate.” The large, blue-chip Dow stocks were up more than 3 percent in the first four sessions in January, and technology stocks surged almost 6 percent.
“That’s not what we expected to see in a year when earnings growth would slow slightly, and we were seeing some of that slowing already,” said Farr, director of asset allocation and portfolio strategy for Wilmington Trust.
The market was buoyed at the start of the year by optimism that Federal Reserve interest rate increases are nearing an end, that energy costs are moderating and that profits would continue to expand, possibly at double-digit rates.
But that scenario started to unravel when the price of crude oil began to trend higher, and especially when high-profile blue-chip corporations such as Intel, Alcoa and Yahoo announced lower-than-expected fourth-quarter profit and revenue figures.
That continued Friday, when General Electric and Citigroup issued lower-than-anticipated results and the price of crude oil moved above $68 per barrel, closing at $68.35 on the New York Mercantile Exchange.
Analysts attribute the latest oil price advance to political tensions in Iran and Nigeria, raising the prospect of a cutoff in oil supplies from those oil-rich countries. Investors were also unsettled this week by the latest terrorist threat from al-Qaeda and a plunge in the Tokyo stock market. The market’s concern is that high energy costs will slow the economy more than anticipated, hurting future profit growth.
But some profit forecasters were already calling for slower growth after 10 straight quarters of double-digit increases.
