U.S. stocks sank across the board Friday as investors had a delayed reaction to Federal Reserve Chairman Alan Greenspan's warning a day earlier that further interest rate hikes are in store.
On a day when the government's latest inflation report showed few signs of the price pressures that Greenspan so fears, the Dow Jones industrial average dropped 295.05 points, or 2.8%, to 10,219.52.
The slide further extended a pullback that has now sliced almost 13% off the Dow since it hit a record high of 11,723 on Jan. 14. The index is at its lowest level since mid-October.
On Friday, even many technology shares--the market darlings of the last two years and particularly the last four months--fell sharply, after all but ignoring Greenspan's comments Thursday.
The tech-dominated Nasdaq composite index plummeted 137.18 points, or 3%, to 4,411.74 as such stocks as Microsoft, Intel and Cisco Systems tumbled.
Analysts said the selling in the market overall suggested that even some bullish investors were reconsidering Greenspan's remarks to Congress on Thursday, in which he said that the Fed's four rate hikes in the last eight months haven't slowed the economy--a clear sign that the central bank intends to tighten credit further.
Some investors appear nervous that Greenspan now is specifically targeting the high-flying stock market. Sellers on Friday may have been rushing to exit because they fear a sharper decline will occur soon if the Fed attempts to drive rates higher than Wall Street had already been expecting.
Greenspan has publicly fretted about the so-called wealth effect from a rising market, in which consumers feel freer to spend--fueling the economy--because their stock portfolios are doing so well.
"I can't remember him being so blunt" about future rate hikes, said Jim Paulsen, chief investment officer of Wells Capital Management. "You've got to read this as Alan saying, 'The stock market has created such a wealth effect that, in order to slow the economy down, we have to take the stock market down.' "
To be sure, Greenspan's stance is controversial in any case. He wants to slow the economy even though inflation pressures have not flared. The government said Friday that consumer prices rose just 0.2% in January, the same as in the prior three months.
On Wall Street, some of Friday's market decline stemmed from unusual factors. Some traders left early because of the Presidents Day holiday Monday and because of inclement weather in New York. That may have meant a lack of buyers in the market.
