Fearing that the credit crunch is rapidly spreading worldwide and won't be quickly fixed by government rescue plans, investors bailed out of stocks yesterday and sent the Dow Jones industrial average down nearly 800 points by midafternoon.
The market rebounded in the last hour and a half of trading, although the Dow still lost 369.88 points for the day to close at 9,955.50. It marked the first time in four years that the index had closed below 10,000, a psychological benchmark for many investors.
"Just about everything these days has a psychological impact on investors," said Jerry A. Miccolis, a senior financial adviser at Brinton Eaton Wealth Advisors in New Jersey. "What's difficult to predict is how they will react. Right now, they are reacting negatively to everything."
The steep sell off came despite the fact that President Bush signed the $700 billion rescue plan Friday, raising fears that the economy's troubles are more serious and far from over. Investors are increasingly nervous about the paralysis in the credit markets that has started to affect companies trying to borrow for acquisitions or just to conduct their daily operations.
The problems are spreading worldwide. European countries took emergency steps over the weekend to prop up their financial systems. And even before the U.S. market opened yesterday, stocks were down in Japan, Britain, France and Germany.
"How could someone not be nervous about what is going on?" asked David Citron, a principal at WMS Partners in Towson. "The bear markets before, there always were places to hide. There don't seem to be a lot of places to hide right now.
"It's a very difficult time to assess the correct investment strategy," Citron said. "I don't like the idea of selling into a 500-point down day."
Other major indexes also lost ground yesterday. The Nasdaq composite index dropped 84.43 points, or 4.34 percent, to close at 1,862.96. The Standard & Poor's 500 index dropped 42.34 points, or 3.85 percent, and ended at 1,056.89. At its low points, the Nasdaq fell about 9 percent while the S&P was down about 8 percent.
But it was the Dow's 30-stock index that commanded investors' attention when it seemed in midafternoon that the Dow's steep decline would set a new record for the biggest one-day point drop. That record was set last week when the Dow closed down 777.68 points after the House of Representatives could not muster the votes needed to pass the bailout plan.
