NEW YORK — Stocks plunged Thursday, sending the Dow Jones industrial average down 679 points — more than 7 percent — to its lowest level in five years. Stocks took a nose dive after a major credit-rating agency said it might cut its rating on General Motors and Ford, further rattling investors already fretting over the impact of tight credit on the economy.
The Standard & Poor’s 500 index also fell more than 7 percent.
U.S. stock-market paper losses totaled $872 billion Thursday, and the value of shares over all has tumbled a stunning $8.33 trillion since the all-time high of 14,164.53 on Oct. 9, 2007. That’s based on figures measured by the Dow Jones Wilshire 5000 Composite Index, which tracks 5,000 U.S.- based companies’ stocks and represents almost all stocks traded in America.
Thursday’s sell-off came as S&P’s Ratings Services put GM and its finance affiliate GMAC under review to see if its rating should be cut. The action means there is a 50 percent chance that S&P will lower GM’s and GMAC’s ratings in the next three months.
GM has been struggling with weak car sales in North America.
S&P also put Ford on credit- watch negative. The ratings agency said GM and Ford have adequate liquidity now, but that could change in 2009.
“The story is getting to be like that movie ‘Groundhog Day,’ ” said Arthur Hogan, chief market analyst at Jefferies & Co., referring to the comedy in which Bill Murray’s character relives the same day over and over.
Hogan pointed to the still-frozen credit markets and LIBOR, the bank-to-bank lending rate that remains stubbornly high despite interest-rate cuts this week by the Federal Reserve and other major central banks.
“Until that starts coming down, you’ll be hard-pressed to find anyone getting excited about stocks,” Hogan said. “Everything we’re seeing is historic. The problem is historic, the solutions are historic, and unfortunately, the sell-off is historic. It’s not the kind of history you want to be making.”
The Dow ended the day at its lows, finishing down 678.91, or 7.3 percent, at 8,579.19. The blue chips hadn’t closed below 9,000 since 2003.
World markets were caught in Wall Street’s downdraft today. Trading opened with waves of selling as Japan’s Nik kei index was off more than 10 percent, while South Korean share prices plunged 8 percent.
The Dow’s 2,271-point tumble over the last seven sessions is its steepest seven-day point drop ever.
Its seven-day percentage decline of 20.9 percent is the largest since the seven-day plunge that ended Oct. 26, 1987, when the Dow lost 23.8 percent. That sell-off included Black Monday, the Oct. 19, 1987, market crash when the Dow fell nearly 23 percent in a single day.
The Nasdaq, with a bevy of tech stocks, spent much of the session higher but eventually declined as the sell-off intensified.
Short Selling Q&A
Short selling — in which investors bet on financial stocks going down — was banned for three weeks in an effort to protect financial companies whose shares had come under siege. Short sellers were blamed for the massive declines in companies such as Lehman Brothers and Bear Stearns that were already crippled by the credit crunch. Still, debate continues as to whether the ban did more harm than good. How the lifting of the ban will affect financial stocks:
Q: How does short selling work? How can you put money on a stock going down?
A: In short selling, investors borrow shares and sell them with the hope they’ll go down in value so they can pay for the shares later at a lower price and turn a profit.
Q: Why was the practice temporarily banned for financial stocks?
A: Securities and Exchange Commission Chairman Christopher Cox hoped the ban would stop unlawful manipulation of stock prices. The concern was that short sellers deliberately targeted financial companies, pushing their share prices down and leading to their collapse.
Q: Did the ban help stabilize these companies?
A: Not really. Even without short sales, shares of Lehman Brothers — a 158-year-old investment bank — were crippled, and the company was forced into bankruptcy. And financial stocks plunged 23 percent while the ban was in effect.
The Associated Press
