Several Factors Led to Dow's Sudden Plunge The Dow Jones industrial average lost more than 400 points Tuesday. Many factors were in play, including a possible computer glitch. There were worries about China's economy and about cautionary words from former Fed chief Alan Greenspan.
NPR logo

Several Factors Led to Dow's Sudden Plunge

  • Download
  • <iframe src="https://www.npr.org/player/embed/7638002/7638003" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript
Several Factors Led to Dow's Sudden Plunge

RENEE MONTAGNE, host:

This is MORNING EDITION from NPR News. I'm Renee Montagne.

STEVE INSKEEP, host:

And I'm Steve Inskeep. Good morning.

If you ever needed proof that investing is a risk, consider this: stock portfolios from New York to Shanghai are worth less than at the start of this week, and we only have a partial answer as to why. Here's the picture so far today. China's stock markets have recovered some of the gains from the dramatic drop yesterday. In a moment we'll get the view from Asia.

We begin on Wall Street, where stock prices are steady after suffering some of their worst losses in years on Tuesday. Investors blamed concerns about the U.S. economy, and about the Chinese economy, and maybe a computer glitch. NPR's Jim Zarroli reports.

JIM ZARROLI: The stock market has been a pretty placid place in recent months, with few of the big swings in prices that characterized stocks five or six years ago. But yesterday the idyll came to a crashing end. All day, prices fell and fell more. Then, at about three o'clock, there was a sudden dizzying drop in the Dow Jones Industrial Average that called to mind the 1987 crash. And market strategist Kevin Caron of Ryan Beck wasn't sure what to make of it.

Mr. KEVIN CARON (Market Strategist, Ryan Beck): It was a very fluky thing to watch. We were looking at the market down roughly 290, 295, 300 points, and then suddenly within a very short period of time - literally half a second - we saw the markets were down over 400 points. At first glance it looked like it might have been a misprint.

ZARROLI: Over at Standard and Poor's, chief investment strategist Sam Stovall was equally bewildered.

Mr. SAM STOVALL (Chief Investment Strategist, Standard and Poor's): I was quite taken aback by the magnitude of the numbers reeling off. It was almost as if somebody was spinning an odometer illegally.

ZARROLI: The Dow would continue to fall, losing more than 500 points, although it later rebounded somewhat. As it turned out, that swift mid-afternoon drop was due to technical problems. Dow Jones said there was a sudden surge in orders that caused its computers to back up, and that caused a delay in its calculation of its major index.

But the computer glitch explained only a part of the market's problems yesterday. The sell-off started because of word that Chinese authorities may be ready to crack down on stock speculators, which sent the Shanghai stock market into a freefall.

Stovall says its not that China is such a big part of the world economy, but he says, investors have come to see China as a kind of magical place, and any suggestion of trouble there scares people.

Mr. STOVALL: Growth is very important in China, and that's where a lot of the demand for materials, for industrial and for just overall worldwide GDP. And so if you have a problem in the main engine, then I think investors would be concerned.

ZARROLI: There were also warning signs on this side of the globe. A report issued yesterday morning said durable goods orders fell more than expected in January. And there have been signs that lenders are beginning to tighten credit standards, which can hurt growth prospects.

None other than former Fed chairman Alan Greenspan was quoted this week as saying that a recession could occur in the United States later this year.

Kevin Caron of Ryan Beck says Greenspan may be right.

Mr. CARON: We think that the evidence is now pointing increasingly towards a softer, or more of a rough patch for the economy, perhaps later this year moving into next year, where the odds of recession are indeed climbing.

ZARROLI: But a lot of other market watchers said the reaction to Greenspan's remarks was probably overblown. Yesterday might have been one of the biggest one-day point losses for the market, but in percentage terms, it was less than historic.

Tim Ghriskey, of Solaris Asset Management, says the market may have fallen about as much as it's going to. As dramatic as the drop appeared to be, he says there is reason for optimism. For one thing, Ghriskey says, there is still a great deal of liquidity in the market.

Mr. TIM GHRISKEY (Solaris Asset Management): There are still a lot of players in the market with a lot of cash that needs to get put to work, and a lot of acquisitions and mergers that are likely to occur and push stocks higher over the coming months.

ZARROLI: If so, yesterday's decline will soon be forgotten - one of those periodic shifts that temporarily spook investors and remind them just how painful the markets can be.

Jim Zarroli, NPR News, New York.

Copyright © 2007 NPR. All rights reserved. Visit our website terms of use and permissions pages at www.npr.org for further information.

NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.