- The Washington Times - Tuesday, March 3, 2009

Investors’ despair about financial companies and the recession has brought the Dow Jones Industrial Average to another unwanted milestone: its first drop below 7,000 in more than 11 years.

The market’s slide Monday, which took the Dow down 300 points, was nowhere near the largest it has seen since last fall, but the tumble below 7,000 was nonetheless painful. The credit crisis and recession have slashed more than half the average’s value since it hit a record high over 14,000 in October 2007. And now many investors fear the market could take a long time to regain the lost 7,000.

“As bad as things are, they can still get worse, and get a lot worse,” said Bill Strazzullo, chief market strategist for Bell Curve Trading. Mr. Strazzullo said he believes there’s a significant chance the S&P 500 and the Dow will fall back to their 1995 levels of 500 and 5,000, respectively.

And it’s not just U.S. companies that have Wall Street frightened. HSBC PLC, Europe’s largest bank by market value, said Monday it needs to raise $17.7 billion. The company reported a 70 percent drop in 2008 earnings and said it would cut 6,100 jobs.

While the root of financial firms’ problems lie with the bad bets they made on mortgages and mortgage-backed securities, now the recession is exacerbating their problems as it also forces millions of job cuts.

“The economy definitely has deteriorated since November,” said Sean Simko, head of fixed income management at SEI Investments. “It’s just the fact that we haven’t seen signs of improving or stabilizing, per se, which is adding to the morass of the market.”

The Dow fell 299.64, or 4.24 percent, to 6,763.29. The Dow last closed below 7,000 on May 1, 1997, and hadn’t finished at this level since April 25, 1997.

The Dow’s descent has been swift. It took only 14 sessions for the average to go from above 8,000 to below 7,000. So far this year, the Dow is down 22.9 percent.

Broader stock indicators also slid. The Standard & Poor’s 500 Index fell 34.27, or 4.7 percent, to 700.82. The index briefly traded below the 700 mark in the final minutes of the session. The S&P 500 Index hadn’t traded below 700 since Oct. 29, 1996. It hasn’t closed below that level since the previous day, Oct. 28.

The Nasdaq Composite Index fell 54.99, or 4 percent, to 1,322.85.

The Russell 2000 Index of smaller companies fell 21.22, or 5.5 percent, to 367.80.

The Dow Jones Wilshire 5000 Index, which reflects nearly all stocks traded in America, is down 55 percent since its peak in October 2007. That’s a paper loss of $10.9 trillion.

About 16 stocks fell for every one that rose on the New York Stock Exchange on Monday, where volume came to a heavy 1.80 billion shares.

Bond prices jumped as stocks fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, tumbled to 2.88 percent from 3.02 percent late Friday. The yield on the three-month T-bill, considered one of the safest investments, slipped to 0.24 percent from 0.25 percent Friday.

Oil prices fell more than 10 percent to $40.15 a barrel Monday as investors worried that a weak economy will hurt demand.

The economic data have been mostly grim, adding momentum to the market’s slide. Even when the readings show some room for optimism, many investors have been quick to write them off as aberrations. On Monday, the government said personal spending and income rose more than expected in January but that construction spending fell twice as much as forecast. A trade group said manufacturing contracted in February for the 13th straight month, but at a slower pace than expected.

More, and possibly unnerving, economic data are expected later in the week, including the government’s report on unemployment and job losses during February.

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