Tough day on the job

Tough day on the job
Market correction was inevitable, analyst reminds.

Published Friday, July 27, 2007

NEW YORK (AP) - It felt like another cold day on Wall Street.

Though it was balmy outside, Wall Street’s spasms yesterday in some ways resembled those of the pullback this past winter that marked the stock market’s worst session in 5½ years. Yesterday, as in late February, investors grappled with concerns about whether mortgages made to borrowers with poor credit would show another spike in defaults and trigger a broader economic slowdown.

Investors also grew uneasy that tightening credit standards would make it more expensive to put together the deals that have given a boost to corporate profits, enriched stockholders and kept the stock market climbing in recent years.

The Dow Jones industrial average ended down more than 310 points, or 2.26 percent, after sliding nearly 450 points in afternoon trading. Broader market indicators also fell. The Nasdaq composite index fell 1.84 percent, while the Standard & Poor’s 500 lost 2.33 percent.

The market showed some signs of stability in early trading today. The Dow was up about 38 points at the 13,512 level by mid-morning.

Back in February, the story was even worse, with the Dow ending down 416 points. But the markets saw a quick recovery in the weeks that followed. Whether observers see yesterday’s decline as a sign the economy is poised to take a hit from an unraveling housing market or as merely a hiccup, many say the fundamental economic story didn’t change overnight.

"I don’t know that this is the end of it," said Neil Massa of MFC Global Investment Management in Boston. Beyond subprime mortgages, he said investors are facing a panoply of concerns such as the availability of credit, uncertainty about the stamina of consumer spending and an anemic U.S. dollar.

These potential economic pitfalls aren’t new, and Wall Street has in recent months vacillated on whether the economy can sidestep these troubles. Only last week, investors swatted away such worries and sent the Dow above 14,000 for the first time and drove the S&P 500 to new highs as well. But the pullback had been brewing, Massa said. "It was inevitable."

Even absent the concerns that clouded the mood yesterday on Wall Street, the market’s rise in the past year dictated investors take a break, said Al Goldman, chief market strategist at A.G. Edwards in St. Louis.

In the three weeks before yesterday, the Dow had risen 5 percent, while the S&P 500 gained 4 percent, and the Nasdaq added 5.7 percent.

"The basic problem in the market is that we’ve been up, up and away and needed a correction," he said.