Dow Dives as Wall Street Volatility Persists

The Dow tumbled sharply Thursday, evidence of investor nervousness about the housing market, rising oil prices and the prospect of tighter credit.

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MICHELE NORRIS, Host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Michele Norris.

ROBERT SIEGEL, Host:

And I'm Robert Siegel.

Stocks fell sharply on Wall Street today. There was a major sell-off and all the major stock index has fell. The Dow Jones industrial average, which hit a record 14,000 a week ago, lost 311 points. At its low today, the Dow was down nearly 450 points. The drop was so severe that the New York Stock Exchange imposed curbs on trading.

We're joined now by NPR's Jim Zarroli in New York. Jim, what was going on today?

JIM ZARROLI: Well, Robert, this was all about housing. You know, the housing market has been getting pretty weak for a long time. This week, there has just been a cascade of sobering news. You had Countrywide Financial - the big mortgage lender - come out and say it was seeing an increase in defaults and delinquencies, not just in the subprime market, which serves people with weak credit histories and has been in trouble for a while, but in other kinds of lending, like home equity loans.

Today, you had one of the biggest homebuilders, D.R. Horton, say its revenues are way down. Then, the Commerce Department said single-family home sales are down. So, you know, in a lot of places, this has turned into just a really lousy time to be building or selling a home or to be lending money to people who are buying homes.

SIEGEL: But if it were just builders and lenders whose stocks were falling, we wouldn't see what we saw today - companies that have nothing to do with housing were falling. What was going on?

ZARROLI: Right. I put that question to Mark Zandi of Economy.com. And Zandi says, when you have big lenders like Countrywide seeing more delinquencies and defaults, then, people start to get scared. First, the lenders say, we have to stop giving mortgages out as easily as we used to - and they were giving them out very easily. So already, you've seen that sector tighten. Then, you have all those people who have been buying mortgage-backed securities and mortgage- backed securities have very much made this housing boom possible. They start to get nervous. They stop investing. Finally, the investors say - the investors in general say, you know, we've lost all this money. We should start getting a lot more careful about everything we invest in. And then, when everyone does that, you have what's called a credit crunch.

Here's Mark Zandi.

MARK ZANDI: Because many investors in the mortgage market are now suffering losses and growing very nervous about their investments, they're rethinking the amount of risk they're taking in other markets, including the corporate bond market. And corporate bonds are vital for financing a lot of the leverage buyout deals, private equity deals that are fueling the takeovers on Wall Street.

SIEGEL: So what kind of consequences are foreseen from what Mark Zandi has just described?

ZARROLI: Well, that's what everybody's worried about. You know, one thing that happened today got people very concerned. You may remember that the parent company of Chrysler has been trying to work out a deal to sell the automaker to a private equity firm. Today, Chrysler said the financing for that deal is being postponed. And instantly, investors started wondering, well, what does that mean? You know, are lenders getting so skittish that we're going to see other deals fall through? Some people would argue, you know, that wouldn't be necessarily a totally bad thing because if lenders start to get more careful about the deals they invest in, then only the better deals will get made, and that's good for the economy in the long run. But the problem is those deals are one of the things that have just been pumping up the stock market, so they stopped getting made. The market suffers.

SIEGEL: Unusual? This is such a swing of mood on Wall Street?

ZARROLI: You know, we see that and we have especially seen it lately. You know, you may remember the end of February, the Dow dropped - I think it was 3.3 percent in a single day - just because of worries about the Shanghai Stock Market. Then, of course, it came back, it hit records, it was 13,000, it was 14,000. You have to remember that on the day of the big stock market crash in 1987, the Dow lost 23 percent. So we have to keep this in perspective.

SIEGEL: This is about two percent, I guess.

NPR's Jim Zarroli in New York. Thank you, Jim.

ZARROLI: You're welcome.

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Dow Plummets on Housing Woes, Rising Oil Prices

Stock investors suffered one of the biggest blows of the year Thursday, as a woe-filled housing market and rising oil prices caused the Dow Jones industrial average to plunge.

The Dow tumbled more than 400 points before recovering to close with a loss of 311 points, at 13,473.

The drop is the biggest since the index plummeted 416 points Feb. 27, after a nearly 10-percent decline in Chinese stock markets.

Meanwhile, a barrel of crude oil was up 27 cents at $76.15 on the New York Mercantile Exchange, feeding the market's worries about inflation.

Disappointing home sales figures, released Thursday, increased uneasiness about the mortgage and corporate lending markets.

Investors who had been able to shrug off concerns about problems in subprime mortgage lending and a more difficult environment for corporate borrowing were clearly worried again.

The anxiety rose after the Commerce Department reported Thursday that sales of new homes dropped 6.6 percent last month to a seasonally adjusted annual rate of 834,000 units — more than triple what had been expected and the largest percentage drop since sales fell by 12.7 percent in January.

Disappointing results from homebuilders Pulte Homes Inc. and D.R. Horton Inc. further pressured the market.

Jitters also remain throughout the market that the number of private-equity deals — a main driver of the market's record run — might dry up as firms have difficulties accessing credit.

"Wall Street continues to walk a wall of worry," said Ryan Larson, a senior equity trader at Voyageur Asset Management. "The housing market continues to be a story, and nobody knows when it will rebound. But, the real concerns are about credit and oil pushing higher."

Thursday's trading was the latest in a series of frenetic sessions over the past month, many accompanied by triple-digit swings in the Dow. Investors either sold shares on worries about the subprime fallout or bought on optimism that there wouldn't be any widespread problems caused by mortgage failures.

Many analysts have described the back-and-forth trading as overwrought and based on gut emotion that took the Dow across the 14,000 mark for the first time.

But the release of second-quarter corporate earnings proved sobering.

Not only was the Dow off, but the broader Standard & Poor's 500 index dropped 35.89, or 2.36 percent, to 1,482.20. The Nasdaq composite index, which is laden with tech stocks, tumbled nearly 49 points, to 2,599.

"It has been pretty volatile as of late, but now fears about a credit crunch are spreading more than they have in the past — and that's causing this drop," said Matt Kelmon, portfolio manager of the Kelmoore Strategy Funds. "That's hurting the financials, and now energy companies are joining the party because oil is so high. They make up a large part of the S&P 500."

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