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Stocks Slump after Bush's Comment on Collision of US Spy Plane and Chinese Fighter
Stocks fell sharply Monday, erasing a substantial advance by blue chips as concerns over political tensions with China intensified Wall Street's ongoing case of jitters.
The Dow Jones industrials had risen as much as 113 points early Monday as investors shrugged off an earnings warning from American Express to take advantage of cheaper stock prices. But the overall market fell after President George W. Bush demanded China arrange the "prompt and safe return" of 24 US crew members and their spy plane that made an emergency landing on the Chinese island of Hainan Sunday.
The Dow closed down 100.85 at 9,777.93.
The blue chip index's swing from sharp advance to sharp decline "shows the nervousness of the market," said Arthur Hogan, chief market analysts at Jefferies & Co.
The market's broader indicators also fell. The Nasdaq composite index tumbled 57.29 to 1,782.97. The last time the Nasdaq closed lower was Oct. 30, 1998 when it stood at 1,771.39.
The Standard & Poor's 500 index declined 14.46 to 1,145.87.
Before Bush's comments, investors were bargain hunting while still trading cautiously on the belief that the economy and earnings will remain weak for the foreseeable future. But with the market extremely unsettled after weeks of volatility, investors decided against taking any chances amid more uncertainty, and so they began to sell.
Monday's downturn didn't bode well for vulnerable stock prices as companies prepare to make their first-quarter earnings announcements, Hogan said. American Express proved that Monday, issuing a first-quarter profit warning and then tumbling US$1.59 to US$39.71.
"We are going to have a lot more of this, a lot of volatility in the coming weeks with more American Express-type announcements," Hogan said. "We are still nervous about how much the economy has slowed and how adversely it is going to affect earnings."
A recent litany of earnings warnings and layoff announcements drove blue chips downward the first three months of the year, giving Wall Street one of its worst quarters in decades.
Investors and analysts started off Monday hopeful that on the first day of trading in the second quarter stocks would move higher.
Analysts reasoned that stock prices were bound to improve now that money managers have finished window dressing, the practice of selling poor-performing shares at the end of the quarter to dress up portfolios' results. They also noted the huge amount of cash sitting in money market accounts, waiting to be poured back into equities.
"The market is ready to rally. You have very oversold (stocks) and very bearish sentiment and you have liquidity that is out there," said Richard E. Cripps, chief market strategist for Legg Mason of Baltimore. ``The fact that one didn't get started is disappointing."
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