NEW YORK – Stocks extended their gut-wrenching slide on Monday and the Dow Jones industrial average posted its biggest one-day point loss ever as investors chose to ignore the Federal Reserve's surprise interest rate cut and focused instead on the risk of a global recession.
The Dow Jones industrial average lost 678.52 points, or 7.07 percent, to 8,921.18. It was its greatest point loss ever, beating out the 617.78 points lost on April 14, 2000. The move occurred amid a frenzy of selling that helped the New York Stock Exchange rack up its heaviest volume day ever, with some 2.36 billion shares trading hands.
However, the loss did not even make the Top 10 biggest daily percentage drops, which is still headed by the 22.6 percent decline on Black Monday, when the stock market crashed on Oct. 19, 1987.
Investors are bracing for more stock declines, albeit not of Monday's magnitude.
"Another couple of days of heavy pressure would not surprise me, but I don't think we are going to see any more down 5 percent days,'' said Henry Herrmann, chief investment officer at fund firm Waddell & Reed, which manages $32 billion in assets.
The Dow has dropped nearly 24 percent from its closing high of 11,722.98 hit on Jan. 14, 2000, a decline that has plunged it deep into ``bear market'' territory — officially defined as a 20 percent drop from its highs.
The Nasdaq composite index dropped 115.66 points, or 6.82 percent, to 1,579.71 after hitting its lowest point since mid-October 1998.
The broader Standard & Poor's 500 Index fell 53.6 points, or 4.91 percent, to 1,038.94, after hitting its lowest since mid-October 1998.
"People are nervous and at current levels a recession scenario is certainly built into these prices," said John Davidson, chief investment officer at Circle Trust Co., which oversees $8 billion.
Analysts had hoped investors would stage a patriotic rally after hijacked planes toppled the World Trade Center's twin towers in New York's financial district and ravaged part of the Pentagon outside of Washington D.C.
But apprehension over possible U.S. military retaliation and a weakening economy kept stocks planted in negative terrain. Entertainment stocks like Walt Disney Co. and airline stocks like UAL Corp., parent of No. 2 United Airlines, led the selloff amid fears of deep losses for the companies.
The few winners included defense contractors like Raytheon Co. and hand gun maker Sturm Ruger & Co., as investors bet on U.S. retaliation and consumers becoming more security conscious.
The market clearly chose to shrug off the Federal Reserve's surprise decision to cut its key interest rate by a half point to 3 percent, its lowest level in nine years. The rate cut was the eighth this year in the Fed's effort to stave off a recession. The Fed's Open Market Committee acted in advance of its regularly scheduled interest-rate session, Oct. 2.
A few hours later, the European Central Bank cut its own key interest rate by a half percentage point in another unexpected move.
Vanished Wealth
About $600 billion in investor wealth evaporated on Monday, as measured by a 5 percent drop in the broad Wilshire 5000 index. Some $6.1 trillion in investor wealth has been wiped out since the Nasdaq index hit a peak in March 2000.
Trading was very heavy with 2.36 billion shares changing hands on the Big Board, the highest ever in the history of the NYSE. Roughly four stocks fell for every one that rose on both the NYSE and the Nasdaq.
Some 534 NYSE stocks and 718 Nasdaq stocks fell to new 52-week lows including Web gear giant Cisco Systems Inc. Cisco, which like many companies announced a stock buyback, was the most active issue on Nasdaq and lost 47 cents to $14.
Apprehension over possible U.S. military retaliation and a weakening economy kept stocks planted in negative terrain.
"The market has a lot to digest. There's a lot of emotion in today's market as many people were affected by the tragedy,'' said Peter Coolidge, managing director of equity trading at Brean Murray & Co. "If you looked at trading in Europe and Asia before, you would have expected something of this magnitude (here) or even a little bit more.''
Grieving but resolute Wall Street bond traders, bankers and stock analysts returned to work on Monday, many of them carrying American paper flags handed out at ferries shuttling commuters into the financial district. Traders said they wanted to get financial markets rolling again.
Financial professionals did pull together — many Wall Street firms operated from makeshift trading operations across the Hudson River in New Jersey — but failed to prevent a sharp selloff.
Many Wall Street bond traders, bankers and stock analysts are still missing co-workers in the ruins of the World Trade Center's 110-story twin towers. Many showed up for work carrying paper American flags, and a uncharacteristic spirit of cooperation was evident.
``Even our competitors are our friends. We want to get down here and be successful,'' Joseph Mahoney, a director at New York Stock Exchange specialist firm Wagner Stott Bear. ``The market is still functioning. I can say I saw no panic.''
Some Positive Aspects
The Fed, acting between its regularly scheduled meetings, cut interest rates by a half percentage point to 3 percent from 3.50 percent to prop up the struggling economy. The European Central Bank followed suit and cut its rates by a half-percentage point in an unexpected move, as did the Swiss National Bank, which also lowered rates by a similar amount.
So far, the Fed's cuts this year have done little to boost the sagging stock market. But a number of analysts said Monday's selloff on very heavy volume left stocks undervalued.
"With the reduction in interest rates, with the market declines today and with all the fiscal stimulus that's on the table, I believe the market is now undervalued,'' said Stanley Nabi, managing director at Credit Suisse Asset Management, which oversees $110 billion.
Analysts noted that high-tech shares fared relatively well.
"It's certainly a positive that what's holding up best is the Nasdaq. If you were thinking there was panic, you would see more dumping there,'' said Richard A. Dickson, technical analyst for Hilliard Lyons in Louisville, Ky.
U.S. airline stocks plummeted as investors around the world feared sharp decline in air travel in the wake of the assault.
The Standard and Poor's Airlines Index plunged 32 percent, reflecting losses by AMR Corp., parent of American Airlines, down $11.70 at $18, or off 39 percent, and US Airways lost $6.05 to $5.57, or 52 percent.
Continental Airlines Inc. fell $19.59 to $20.05, or more than 49.4 percent, said on Saturday it would lay off 12,000 staffers and warned it could file for bankruptcy. Continental Chief Executive Gordon Bethune warned as many as 100,000 airline jobs could be lost.
U.S. television networks stand to lose hundreds of millions of dollars from their decision to broadcast commercial-free news coverage of the attacks. Disney, which owns ABC, fell $4.33 to $19.25, the largest percentage decliner on the Dow.
Aerospace companies may axe jobs and cut research spending as ripples from the attacks spread to airline industry suppliers. Honeywell International Inc. dropped $6.20 to $29.50. Boeing Co. fell $7.66 to $35.80.
The two pressured the Dow as did United Technologies Corp., which plunged $18.70 to $47.50, or 28 percent. United Technologies, whose products range from engines to elevators, said quarterly earnings would fall below targets due to disruptions in the commercial airline industry following the attacks on the World Trade Center and Pentagon.
Defense contractors rose, led by makers of military electronics systems, as investors bet on an increase to defense spending following the attack. Raytheon rallied $6.65 to $31.50, Lockheed Martin Corp. jumped $5.63 to $43.95. Northrop Grumman Corp. rose $12.86 to $94.80. Arms manufacturer Sturm Ruger added $1 to close at $10.30.
Reuters and The Associated Press contributed to this report.
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