Market regains footing after biggest plunge ever

Published 6:01 pm Thursday, May 6, 2010

NEW YORK — U.S. stocks ended with steep losses Thursday after an afternoon meltdown had the Dow Jones industrial average falling nearly 1,000 points — its biggest intraday drop ever — before a comeback of sorts, as Europe’s troubles took hold on Wall Street and amid talk errant trades exacerbated the swift selloff.

“We’re not talking about a couple of companies going bust; we’re talking about countries,” said Peter Boockvar, equity strategist at Miller Tabak, of worries that Europe would not be able to contain debt troubles prompting riots in Greece.

At the worst of the afternoon free fall, the major stock indexes were all down 8 percent, with the Dow average diving 992.6 points before halting its decline, finishing at 10,520.32, off 347.8 points, or 3.2 percent.

“The panic in the middle of the day was market makers that just disappeared, and every machine on Wall Street was trying to sell into a market that didn’t exist. That was a bizarre electronic quant panic of people selling into a black hole,” said Bookvar.

No one was sure what happened, other than automated orders were activated by erroneous trades. One possibilility being investigated was that a trader accidentally placed an order to sell $16 billion, instead of $16 million, worth of futures, and that was enough to trigger sell orders across the market.

The New York Stock Exchange said there was no problem with the Big Board’s systems. Nasdaq issued a statement two hours after the market closed saying it was canceling trades that were executed between 2:40 p.m. and 3 p.m. that it called clearly erroneous. It did not, however, mention a cause of the plunge. The NYSE said it doesn’t expect to cancel any trades.

As equities fell the most in more than a year, 10-year treasury notes rallied, with yields dropping the most since September 2008 and the euro falling to a new 14-month low against the U.S. dollar, below $1.26. Credit-default swaps spreads jumped.

The finish marked the Dow’s biggest point drop since Feb. 10, 2009, and largest percentage decline since April 20, 2009, according to preliminary data from Dow Jones Indexes.

Analysts compared the day’s trade to the market’s reaction to low points in the 2008 financial crisis.

“The markets have an eerie feeling similar to the timeframe when Lehman went down,” said Andrew Brenner, head of emerging markets at Guggenheim Securities.

More than 17 stocks fell for every one that gained on the New York Stock Exchange, where nearly 2.6 billion shares traded and composite volume topped 10.7 billion.

As analysts sifted through the details of the day’s yo-yo action, a brief plunge in Procter &Gamble Co. and other shares, including S&P 500 index futures, came into focus.

As Greece looked to a $144 billion rescue from the International Monetary Fund and 15 other nations that use the euro to help cover its debt, some questioned if some of the nations helping foot the bill — namely Portugal and Spain — would eventually need to be bailed out as well.

“You can go back to Goldman Sachs Friday, when the market sold off. Since then the market has been prone to headline risk and looking for a reason to sell off,” said Jay Suskind, senior vice president at Duncan-Williams.

“Is the market now seeing Greece and Europe as the canary in the coal mine for us? We all know we have budget and deficit issues,” he said.

U.S. economic data was mixed, while retailers reported April sales slowed from March’s gains, with a majority of those reporting missing expectations.