NEW YORK (AP) — Subprime mortgage woes whacked stock prices again yesterday, driving the Dow Jones Industrial Average down more than 240 points to its second-biggest drop in almost four years as troubles piled up for firms that made the risky loans.
All three major stock indexes were down about 2 percent.
“The market’s still jittery, and they’re starting to get full-blown concerns over a bleed in the larger subprime mortgage market,” said Matt Kelmon of the Kelmoore Strategy Funds.
The risk that the subprime mortgage meltdown could hurt the overall housing market, coupled with the Commerce Department’s report yesterday that U.S. retailers eked out a meager 0.1 percent rise in sales last month, led Wall Street to reconsider whether Americans’ buying power will withstand an economic slowdown.
Yesterday’s sell-off was accentuated by options expiring soon and by volatility that has increased since the market’s big plunge on Feb. 27 — a 416-point drop in the Dow that was caused partially by the escalating distress among subprime lenders.
The Dow fell 242.66, or 1.97 percent, to 12,075.96. On March 24, 2003, the index dropped 307 points when U.S. casualties began mounting in Iraq.
The blue-chip index is now down about 710 points, more than 5 percent, from its record close reached Feb. 20. Many market watchers suspect that the market’s correction is not over.
The Dow is still above the low for the year of 12,050.41 reached March 5 and has yet to slip below the 12,000 level, which it reached for the first time last October.
Broader stock indicators also fell by their largest amounts in two weeks. The Standard & Poor’s 500 Index fell 28.65, or 2.04 percent, to 1,377.95, and the Nasdaq Composite Index slid 51.72, or 2.15 percent, to 2,350.57. The Russell 2000 Index of smaller companies fell 19.88, or 2.52 percent, to 769.12.
Volume on the New York Stock Exchange, where declining issues outnumbered advancers by 5 to 1, was high at 1.96 billion shares.
Trading collars were triggered yesterday afternoon when the New York Stock Exchange Composite Index lost more than 180 points. The collars put a chokehold on certain orders, forbidding transactions that capitalize on discrepancies in prices.
Bond prices rose. The yield on the benchmark 10-year Treasury note fell to 4.5 percent from 4.56 percent late Monday.
“Investors are poking around to see how much rotted wood there is here,” said Jack Ablin, chief investment officer for Harris Private Bank. “It looks like the notion was subprime was contained, and now we’re starting to see that maybe this problem has moved into other areas of the market. That’s causing investors great concern.”
“The fear index is rising,” said Steven Cochrane, senior managing director for Moody’s Economy.com.
Government data yesterday suggested that consumer spending might be getting crimped. The Commerce Department said sales at U.S. retailers rose 0.1 percent in February as wintry weather in much of the country kept shoppers away from stores. Investors had expected an increase of 0.3 percent from January.
“I think a big question mark on this is how much of this is weather-related,” said Rob Lutts of Cabot Money Management. “We had two or three days during the month which knocked out activity. … I think it is causing a little bit of alarm short-term.”
Several retailers stumbled after the Commerce Department’s report. Federated Department Stores Inc., parent of Macy’s and Bloomingdale’s, fell 85 cents to $44.09; Wal-Mart Stores Inc. slid $1.08, or 2.3 percent, to $46.18; and Target Corp. fell $1.76, or 2.8 percent, to $60.47.
Light, sweet crude fell 98 cents to settle at $57.93 per barrel on the New York Mercantile Exchange.
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