Dow Jones Average Suffers Dramatic Drop

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The Dow Jones industrial average drops more than 300 points in mid-afternoon trading, rattling world markets. Bob Moon of Marketplace talks with Alex Cohen.

ALEX COHEN, host:

This is DAY TO DAY. I'm Alex Cohen.

There has been a big sell off on Wall Street today. The Dow Jones Industrial average has been down more than 400 points. All the major stock market index since have lost more than 2 percent.

Here to talk about it is MARKETPLACE's senior business correspondent Bob Moon.

Hi, Bob.

BOB MOON: Hello, Alex.

COHEN: So what exactly has been spooking the market right now?

(Soundbite of laughter)

MOON: That really is the multi-million dollar question of the day. Let me start of by saying it's anybody's guess really. We can make some educated guesses, though. Analysts seem to think that these mounting worries over the housing market are beginning to slop over into the broader credit market what's known as the high-yield death market. That's the huge pool of money that's been financing all these big corporate mergers and private equity takeovers in the past couple of years. Big institutional investors, insurance companies, wealthy individuals - they've been making these loans, investing their money in the bonds that fund these deals.

But lately, they seemed to be growing more and more worried about the risk involved and if that means some of these deals might not get funded or this takeover activity starts to slow down, well, that's a lot of what's been feeding the stock market lately and pushing it to these day-after-day record highs we've heard about. If that stops, people might not get as much of a return on their stock market investments that could be behind this big drop today.

COHEN: But, Bob, bad news in the housing market is certainly nothing new. We've been hearing about it for months, so why just now are investors reacting to it?

MOON: It's really impossible to say what the trip wire is here. I had one analyst tell me a short time ago that we probably just got to the point where there was some kind of straw that broke the camels back. There's also some thought out there that after the big market run-ups lately, those record highs for the Dow and the SnP500, well, people sense this nervousness now and they're grabbing the money off the table to realize their recent gains.

COHEN: So, Bob, is this the end of the bull market? Any sense of how long this slump might lasts?

MOON: Good question. This is where you fasten your seatbelts. It's going to be a bumpy ride. We've seen a lot of volatility in recent days. Some analysts I've spoken to this morning say this could go on from anywhere from a few weeks to a few months.

Hugh Johnson has been watching this day unfold at Johnson, Ellington's Advisers.

Mr. HUGH JOHNSON (Chairman, Johnson, Ellington Advisers): I'm hoping that this will be short term or short life, that it won't last more than two to four weeks. But believe me, the decline in stock prices could become, you know, a little bit troubling during that period.

MOON: There's one indicator that might give us an idea of how deep this trouble waters run. You could call at Wall Street's fear meter. Well, it rose by 21 percent - just shot up today - and that's the highest level in more than 13 months.

COHEN: Does that come with the color-coded system?

(Soundbite of music)

MOON: Not as far as I know.

COHEN: Bob Moon is the MARKETPLACE senior business correspondent.

Thanks so much, Bob.

MOON: Thanks.

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