Stock prices swooned Thursday, continuing the market’s February roller-coaster ride.
The Dow Jones industrial average fell 106.49, or 1.1 percent, to 9834.68, wiping out more than half of Wednesday’s gain.
The Dow briefly broke above the 10,000 mark for the third time this month, but another late-session sell-off struck broadly.
Only five of the 30 Dow industrials–Alcoa, Caterpillar, DuPont, Boeing and Exxon Mobil–closed out of the red.
International Business Machines, under the gun to provide fuller financial disclosure, dropped $2.93, to $96.38. Intel lost $1.96, to $29.48, after Banc of America trimmed its earnings estimate.
Another upbeat economic report was virtually ignored. The Federal Reserve Bank of Philadelphia said its index of regional business conditions jumped in February to the highest level since March 2000.
“America’s longest expansion in history has been followed by one of the shortest, shallowest recessions on record,” declared Harvey Rosenblum, president of the National Association for Business Economics. Sixty percent of economists polled by the organization said the recession is over.
Nonetheless, in Thursday’s session, the broader Standard & Poor’s 500 index lost 17.03, or 1.5 percent, to 1080.95. The Nasdaq composite index sank 59.33, or 3.3 percent, to 1,716.24, the lowest close since Oct. 31.
Computer Associates, which is reportedly under investigation by the Justice Department for accounting shenanigans, plunged $2.01, or nearly 10 percent, to $18.90. Cisco Systems dropped $1.58, to $15.11, as the most-active Nasdaq stock.
Trading volume reached 1.35 billion shares on the New York Stock Exchange. Losing stocks outnumbered winners by 3-2 among NYSE-listed stocks
On the Nasdaq market, 1.82 billion shares changed hands, as losers topped winners by nearly 2-1.
Treasury market scare: Little has been made so far about a series of big-ticket bogus bids at recent Treasury auctions.
That may be because making a big deal about it is potentially more damaging to investor confidence than Enron.
Stocks come and go, but the U.S. Treasury market is the anchor of the global economy.
About $1.3 billion in fraudulent bids, entered this month over the Internet by a single bidder using the government’s Internet-based TreasuryDirect system for small investors, violated Treasury rules on the size of so-called non-competitive bids.
Non-competitive bids represent bids from public investors, who are awarded the yield determined in competitive bidding by banks and securities dealers. Many individual investors acquire Treasury securities in this manner.
The Treasury had limits on the size of particular non-competitive bids but not on the amount a single bidder could receive through multiple bids–a mistake that seems pretty obvious. The problem has been fixed, the Treasury said this week.
The government voided the bogus bids and preserved the yields awarded to investors at the affected auctions.
But damage was done nonetheless, said Ward McCarthy of the New Jersey-based market research firm Stone & McCarthy. More than $900 million of the improper non-competitive bids, gathered in advance of auctions in the week of Feb. 4, reduced the amount of securities available for bidders at those auctions, he noted.
“These [competitive] bidders lost out because of the fraudulent bidding that artificially bloated the non-competitive pool,” McCarthy wrote in a report on the incident.
In voiding the improper bids, which had been accepted but not paid for, the government reduced the amount of securities sold at the affected auctions.
In an interview, McCarthy said he and his colleagues remain perplexed about what might have motivated the bogus Internet bidding, which the Secret Service is investigating.
“Our first thought was there was some high school kid out there with too much time on his hands,” McCarthy said.
But other explanations come to mind, including cyber-terrorism and an effort by a professional trader to game the system, he said.
The climate of concern about financial market integrity demands that Treasury Secretary Paul O’Neill explain what happened completely and quickly.
