NEW YORK -- Stock prices crumbled at the end of trading yesterday after a steep decline in the Treasury bond market that traders suggested could have stemmed from several troubled financial institutions liquidating their holdings.
The Dow Jones industrial average, which was down only slightly throughout much of the session, slid modestly in the afternoon and then plunged abruptly in the last hour, closing down 50.98 points at 2,920.17. The slide was widespread, with about two issues on the New York Stock Exchange falling in value for every one that rose.
Volume on the exchange was 172.7 million shares. It was a beautiful spring day, and by the time the tumult occurred, many of the trading rooms at the city's large brokerage firms had already emptied.
The decline appeared to begin in the bond market, where the yield on the benchmark 30-year Treasury bond rose to 8.31 percent from 8.22 percent Thursday and 8.03 percent Wednesday. The corresponding decline in bond prices, traders said, sparked a sell-off in financial futures of stock indexes traded on the Chicago markets, and this prompted a series of program trades of all the stocks listed in the indexes. A program trade occurs when large investors rely on computers to move their money around based on market trends.
"I can't see any other reason" for the decline, said A. Marshall Acuff Jr., strategist at Smith Barney, Harris Upham & Co. "When I look at my screen, stocks included in the major indexes that could be affected by programs dropped dramatically, and many of the over-the-counter stocks, which are not, turned up."
The trigger for the bond market's swoon, several market analysts said, was a rumor that First Capital Holdings Corp., parent company of a troubled California insurer, was selling its bond portfolio. A second rumor held that similar sales were being made by a New England bank.
Yesterday's decline came amid a period of generally lackluster stock performance, following an early year rally that pushed the Dow over 3,000. "The market has been correcting since February," said Paul Lesutis, a portfolio manager with Brandywine Asset Management. "Perhaps now the major averages are finally reflecting what has been happening to many stocks for the past couple of months."