Wall Street plunges on budget uncertainty
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Unnerved by more bad news from the government budget negotiations in Washington, stocks and bonds plunged on Wall Street yesterday with the Dow Jones industrial average ending 97.19 points down at 5,032.94.
It was the index's ninth biggest one-day drop ever, and follows a one- day fall of 101.52 points last month.
The sell-off whipped through Wall Street in spite of trading curbs imposed by the stock exchange. At one point in the last few minutes of trading, the industrial average was off by nearly 114 points before recovering slightly. Yesterday's retreat came in the wake of a 67-point decline on Tuesday.
Blue chip investors had apparently been unsettled in particular by reports of remarks made by Newt Gingrich, the House Speaker, suggesting that the negotiations to agree on a seven-year plan to eliminate the federal budget deficit might not be concluded until after the US elections in November.
The battered technology sector was also hit by Motorola's unexpected lower fourth-quarter earnings.
Another sell-off day could take the Dow back below the 5,000 marker, which it breached late last year, but analysts still seemed confident that the long-term trend would remain upward.
"I don't think this is the beginning of a bear market, I think this is a liquifying correction," remarked Byron Wien, managing director at Morgan Stanley. "I think we still have another high out there."
Apparently unable to narrow their differences, the two sides in the budget talks have given up hope of making a breakthough this week and are expected to return to the table next week.
Referring to Mr Gingrich's comments, Jack Baker, managing director at Furman Selz remarked: "I don't think investors need much of an excuse to sell, but they certainly got it.
"The American public and the investment community are not going to sit by and keep buying stocks when there is so much uncertainty," he added.
Further prompting the sell-off, which contributed the fifth largest day's trading volume in history, were rumours early in the day of hesitations in the White House about reappointing Alan Greenspan as the chairman of the US Federal Reserve.
While Tuesday's decline was sparked principally by a sell-off in the technologies sector, yesterday's rout affected stocks across the spectrum. Stocks could face further convulsions if fourth-quarter earnings reports contain many unexpected negatives.
On the bond market, meanwhile, the price of 30-year US treasuries was off 29/32 of a point at the close, with yield rising to 6.17 per cent.
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