NEW YORK | Wall Street ended another highly volatile session with a big last-minute loss as the market’s stubborn worries about a protracted economic downturn and tight credit erased budding optimism about a housing-sector recovery. The Dow Jones Industrial Average skidded 203 points Monday, with almost all the decline coming in the last 10 minutes.
The Street’s back-and-forth moves were typical for a turbulent market that has seen many recent rallies evaporate - particularly as hedge and mutual funds sell off even strong assets so they can meet investors’ demands for their money back. These forced sell-offs tend to happen late in the day, when the funds figure out how much cash they will need to meet redemptions.
But the market’s anxiety also increases as the closing bell approaches, especially with growing concern about the spread of the financial crisis overseas. News from Asia and Europe tends to break overnight and before trading on Wall Street resumes in the morning.
“We were trading higher earlier on very light volume, but the buyers just couldn’t gather enough momentum to keep it going,” said Alfred E. Goldman, chief market strategist at Wachovia Securities. “When confidence is razor-thin, the nervous tension goes way up and ‘bam’ - the sellers take over.”
“It’s just an overall malaise about how bad the economic slump is going to be globally,” he said.
That malaise grew particularly after credit-ratings agency Moody’s Investors Service in the last half-hour of trading Monday downgraded General Motors Corp. further into “junk” status, pointing to the sharp contraction of the U.S. auto market. Shares of GM, one of the 30 Dow components, sank 50 cents, or 8.4 percent, to $5.45.
Earlier, banks got a boost after the Treasury said it signed agreements with nine financial institutions to buy stock in the companies this week. An upbeat home-sales report also gave the market support until late afternoon.
The Dow fell 203.18, or 2.42 percent, to 8,175.77 after earlier rising by as many as 220 points. Broader stock indicators showed even more sizable losses. The Standard & Poor’s 500 Index fell 27.85, or 3.18 percent, to 848.92, and the Nasdaq Composite Index fell 46.13, or 2.97 percent, to 1,505.90.
The Russell 2000 Index of smaller companies fell 22.72, or 4.82 percent, to 448.40.
The waffling in the market came amid light trading volumes ahead of possible interest-rate moves from central banks - including the Federal Reserve, which is set to begin a two-day meeting Tuesday. The Fed is expected to lower its Fed funds rate by a half-point to 1 percent on Wednesday. Investors are also optimistic that the European Central Bank is moving toward its own cut after President Jean-Claude Trichet said Monday such a step was “a possibility.”
News that sales of new homes increased in September was a welcome surprise. While median home prices have dropped to the lowest level in four years, investors appeared pleased - at least initially - that the market was beginning to chip away at an inventory glut. The Commerce Department reported that sales of new single-family homes rose by 2.7 percent in September to a seasonally adjusted annual rate of 464,000 homes. Economists had expected sales would drop from August.
But home prices - a big factor causing banks to tighten their lending standards - are still falling. The median price of a new home declined by 9.1 percent from a year ago to $218,400, its lowest level since September 2004.