The US stock market flirted with the bear yesterday as one of the largest sell-offs of stocks threatened to bring a formal end to America's 10-and-a-half year boom.
Less than an hour into what analysts called a "brutal" day on Wall Street, the blue-chip Dow Jones industrial average dropped below 9,378 points - 20 per cent off its all-time high of 11,722.98 on January 14th, 2000 - and therefore technically a bear market. However, in a dramatic late rally, the blue-chip index rallied almost 3 per cent to finish just 11 points above bear territory at 9,389.48, a fall of 97.52 points, or 1.03 per cent.
The Nasdaq also rallied late in the day turning a loss of more than 1 per cent into a gain on the day of 3.69 per cent to finish at 1,897.71.
In the past 10 trading days, the Dow has dropped close to 1,500 points or 13.5 per cent of its value, to lows not seen since February 1999. At one point yesterday, the Dow had lost 374 points in the session to make it one of the bleakest day's trading in the past two years.
Rumours on Wall Street in mid-afternoon that Tokyo Mutual Bank was about to collapse added to the sense of panic on the floor of the New York Stock Exchange. Selling had already become frantic over the disappointment at the half point interest rate cut on Tuesday and further news of falling corporate profits.
The Dow was dragged down by the announcement from consumer giant Procter & Gamble that it planned to cut 9 per cent of its global workforce, or 9,600 jobs, because of slowing sales growth. Restructuring will make it "challenging" for the largest household-products maker to increase profit by 10 per cent in fiscal 2002, chief executive Mr Alan Lafley said on a conference call. Retail giants Home Depot and Wal-Mart Stores saw their stocks fall on fears of reduced consumer spending and a prolonged economic downturn.
Technology stocks, which have already dragged the Nasdaq deep into bear territory, managed to avoid losing much ground as investors sought out bargain prices. "Investors are now going to concentrate on lightening up positions in the Dow and the S&P (500) because they haven't gone down as much. As a relative investment right now, the Nasdaq may look a little bit more appealing," said Mr Barry Hyman, chief investment strategist at Weatherly Securities.
Despite the gloom on Wall Street, the US economy is not yet in recession, according to New York-based Conference Board, a key business research group that measures economic indicators.
The leading index declined in four of the past five months, and fell 0.2 per cent in February, but this was not enough to signal a recession, the board said. Economic activity continues to grow, although more moderately.
"Gains in the service sector offset problems in the manufacturing sector, allowing continued growth in overall economic activity," it said.
