In a fitting tribute to the 20th anniversary of the stock market crash of 1987, the bottom fell out of the Dow yesterday as corporate earnings continued to fall short of expectations and crude oil prices marched upward.
The Dow Jones industrial average dropped 366.94 points, or 2.64 percent, to 13,522.02 – the biggest one-day decline in two months.
But it wasn’t just the 30 blue-chip stocks that make up the Dow that shouldered the burden as a series of other benchmark indexes also hit multi-month lows.
The Standard & Poor’s 500 index dropped 39.45 points, or 2.5 percent, to 1,500.63. The Nasdaq composite index sank 74.15, or 2.65 percent, to 2,725.16.
Crude-oil futures briefly topped $90 a barrel for the first time before settling down 87 cents, or 1 percent, to close at $88.60. Prices are up 5.9 percent this week.
The triple-digit decline came exactly 20 years after the Dow tumbled 508 points, or 22.6 percent – the largest single-day percentage decline in the Dow’s history and what has since become known as Black Monday.
The collapse was different in at least one respect. The drop in 1987 was heavily connected to rising interest rates, whereas today federal funds futures are pricing in a 92 percent probability of a quarter-point interest rate cut when the Federal Reserve meets again in two weeks.
If investors were looking to pin blame on someone for the declines, they had their pick of culprits.
In the financial sector, Wachovia choked on loan write-offs and reported slower than expected profit growth. Aerospace giant Honeywell told investors that the U.S. market is looking soft, causing its shares to drop almost 4 percent to $58.32. The biggest shocker was 3M, which fell more than $8, or 8.5 percent, to $86.82 when it missed its earnings targets.
But the biggest losers were in the oil sector, where oil-services giant Schlumberger said that its North American revenues declined and that some key Caspian Sea and Nigerian projects were going to be delayed.
A Greenwich, Conn.-based hedge fund trader told The Post that the one-day collapse represented the acknowledgement from money managers “that earnings expectations of major corporations are just way, way out of line. Pricing in double-digit growth is over.”
Traders looking for relief from stock-trading blues in the credit markets might want to reconsider.
Two separate structured investment vehicles – essentially an off-balance-sheet credit arbitrage fund for banks and hedge funds – defaulted on more than $7 billion in debt.
SIVs from London’s Cheyne Finance and Germany’s IKB, both of which are loaded with subprime mortgage debt, were unable to meet debt payments as the value of their assets continued to plummet.