Investors continued to flee stocks and bonds Wednesday on fears of imminent Mideast war, sending long-term bond yields over 9% and pushing the stock market almost to a 12-month low.
* The Dow Jones industrial average plummeted 43.81, or 1.7%, to 2,560.15. That put the blue chip index within 17 points of its 12-month low of 2,543.24, reached Jan. 30.
* The bond market also was hit by a selloff, sparked by another surge in oil. The yield on the Treasury's 30-year bond rocketed to 9.07% from 8.94% Tuesday. Wednesday's yield was the highest since May, 1989, and the first above 9% since early May of this year.
* The dollar fell again, and gold prices rose, with the spot price on the New York Commodity Exchange up $3.60 to $411 an ounce.
* Tokyo stocks were slammed. The Nikkei average plunged 1,086.93 points, or 4.1%, to end at 25,210.91. It was the index's ninth-largest point decline on record. By early afternoon today, the Nikkei had dropped 1,348.42 points, or 15.4%, to 23,863.49.
Traders said the stock and bond markets were holding up well, going into President Bush's news conference Wednesday. But then investors quickly realized that "nothing substantial was going to happen to change the Mideast situation, and that we're a hairbreadth from a shooting war," said John Burnett, trader at Donaldson, Lufkin & Jenrette Securities in New York. "Despair set in again."
The destruction in the market was apparent from the lopsided winners/losers list: On the Big Board, 1,190 issues fell in price, while only 379 rose and 428 were unchanged. New York Stock Exchange volume totaled 175.6 million shares, down from 194.63 million on Tuesday.
The Dow fell 52.48 on Monday, and now has lost 439, or 14.7%, since its peak of 2,999.75 on July 17.
In the bond market, traders dumped Treasury issues Wednesday as they watched oil soar $2.51, or 8.7%, to $31.22 a barrel for October futures contracts for the U.S. benchmark crude, West Texas Intermediate.
The jump in oil prices since the Iraqi invasion of Kuwait has fanned fears of higher inflation--the No. 1 enemy of fixed-rate bonds. The 30-year T-bond yield, a good leading indicator of other long-term rates, such as for mortgages, was at 8.35% just before the Iraqi invasion.
Crossing the 9% mark is a significant--and perhaps ominous--event, some analysts said. "Nine percent used to be the magic number" to bring buyers in, said Peter Greenbaum, bond analyst at Smith Barney, Harris Upham in New York. "But now, who can tell what it will take to get speculators back into this market."
Michael Rosen, bond trader at First Interstate bank in Los Angeles, said that while he didn't see panic selling Wednesday, "the overall sentiment is just terrible."
Traders say the danger now is that slumping stock and bond markets will feed off each other. That could bring a cascade of selling by investors who have so far held on. A new 12-month low on the Dow, in particular, could drive many investors to throw in the towel and admit that a bear market has arrived, some analysts say.
Jeff Kaminsky, stock trader at Mabon, Nugent in New York, said he has begun to see some new selling by institutions that have held their ground since the Dow peak in mid-July. Those investors have been waiting for the market to rally so they could sell into that strength. But more investors are beginning to believe that "the bounce that people have been looking for may not come," Kaminsky said. So they're bailing out.
A clear sign of that was in the renewed trouncing Wednesday of many growth stocks that investors have hoped would bounce back. Disney tumbled 2 to 98 1/8, its first close below 100 in more than a year. Other growth-stock losers included drug giant Merck, off 2 3/4 to 78 1/2; Nike, off 5 3/8 to 62, and Pepsico, off 2 1/2 to 68.
If war breaks out between the United States and Iraq, many analysts say the fear and panic that it would cause--not even counting the economic effects of soaring oil prices--could precipitate a massive stock selloff. "You've got some people saying the market now has vulnerability written all over it, down to 2,100 (on the Dow)," said DLJ's Burnett.
A few experts, however, believe that a shooting war in the Mideast would spark a rally rather than a selloff. "I personally believe that President Bush is going to invade Kuwait and win a strong victory against Iraq" quickly, said Ken Heebner, who manages $2.5 billion for Capital Growth Management in Boston. That would send stock prices up in a hurry, he said.
But Heebner also admits that beyond such a short-term rally, he has no conviction that the market can stay up.
Market highlights Wednesday:
* The Dow sank under the weight of losses by Kodak, off 1 1/4 to 39; GE, off 1 5/8 to 60 1/4, and Primerica, off 1 3/4 to 27. Goodyear was the only non-oil bright spot, up 1 3/8 to 24 3/8, possibly on takeover rumors.