A joint effort by Washington, Wall Street and corporate America to buoy the U.S. stock market failed to keep a wave of selling from battering share prices as the Dow Jones industrial average dropped more than 7 percent on the first day of trading since the Sept. 11 terrorist attacks on the World Trade Center and the Pentagon.
The Dow's 684.81-point plunge, its biggest point loss in history, came despite an unprecedented bid by the Bush administration, the Federal Reserve, Wall Street executives and major U.S. corporations to prop up the market in the hopes of sending a message that the U.S. financial system could shrug off the terrorist assault.
The Federal Reserve Bank provided the market with a pleasant surprise shortly before it opened by cutting short-term interest rates by half a percentage point -- the eighth reduction by the Fed this year -- and central banks in Europe and Canada also cut rates. But while analysts said the Fed's action may have helped brake the market's fall, it did not keep share prices from sinking immediately after the market opening, which got off to an emotional start with two minutes of silence and the singing of "God Bless America" on the floor of the New York Stock Exchange.
President Bush signaled around noontime that he was prepared to support a new tax cut to boost the economy, as well as a bailout of the beleaguered airline industry -- yet stocks continued to spiral downward.
Amid record volume of more than 2.37 billion shares on the New York Stock Exchange, the selling pressure gathered momentum throughout the day, despite several pledges by companies to buy their own stock and exhortations by top U.S. policymakers, notably Treasury Secretary Paul H. O'Neill, who took the extraordinary step of predicting on television that the market would soon be headed for new records.
In the end, for all the talk in recent days about a patriotic movement to buy stocks, financial pessimism prevailed. The markets reflected widespread forecasts that the already-slowing U.S. and global economies would weaken further because of the blow inflicted to the confidence of American consumers and a variety of industries.
Airline stocks got clobbered, with most tumbling 40 percent to 50 percent as carriers announced they were cutting flights and jobs to conserve their dwindling cash, and industry executives pleaded for federal assistance. Also hit hard were retail, financial, oil, media, auto and tech stocks. Only defense contractors, metals stocks, security firms and some communications issues resisted the selling.
The Dow's loss was well below the 22.6 percent drop during the 1987 stock market crash, and market officials voiced relief that trading went smoothly, without the panic or disruption that many had feared after last week's four-day hiatus, the longest since the Great Depression.
But the benchmark Dow ended the day at 8920.70, its lowest level since December 1998. The Nasdaq composite index also fell about 7 percent, closing at 1579.55, down 115.83. The broader Standard & Poor's index of 500 stocks dropped almost 5 percent, finishing at 1038.77.
That was a keen disappointment to those who had sought to whip up a symbolic rally in which the American people, by buying shares, would "stick their thumb in the eye of the terrorists," as Vice President Cheney put it Sunday on NBC's "Meet the Press."
The outcome might have been much worse, analysts said, had it not been for moves such as the Securities and Exchange Commission's easing of rules on corporate stock buybacks.
"People are saying, 'Where is that patriotic rally?' " said Art Hogan, chief market strategist at Jefferies & Co., a Los Angeles-based institutional brokerage firm. "We're seeing it. It's just happening at a lower level, happening as support. The combined effort between Wall Street, companies, the Fed, the SEC -- that's why we're only down 7 percent."
Market and administration officials emphasized that the resumption of trading was an enormously important step, especially in view of the logistical obstacles, such as phone outages and widespread destruction in Manhattan's financial district, that had threatened to hobble the nation's system for providing capital to businesses.
At a news conference after the market closed, O'Neill reminded reporters that a week ago many people had doubted the market would be able to open at all, let alone handle the biggest combined volume ever. Hardwick Simmons, chief executive of the Nasdaq Stock Market, said the fall simply meant that everyone who wanted to express their opinion on stock values was able to do so. Many others, he said, were simply waiting on the sidelines for a good time to buy. "Markets will be markets," Simmons said.
But in the lead up to today's opening, the ostensibly free-market Bush administration had launched a series of measures aimed at preventing a market rout.
Financial regulators admonished bank and brokerage executives to put their firms' self-interests aside, if need be, to ensure that there were plenty of buyers ready to absorb the sales. The SEC, in a first-ever use of emergency powers granted after the 1987 market crash, suspended rules that limit the degree to which companies can buy their own shares -- and about 75 corporations reportedly responded, among them General Electric, Cisco Systems, Intel and United Parcel Service.
"It's appropriate to step up our current activity [of share buybacks] and affirm our faith in the long-term prospects of the company," Jeffrey R. Immelt, GE's chief executive, said in a statement. But GE's shares fell 10.7 percent, to $35.15, in part because of the company's heavy involvement in the reinsurance business.
O'Neill, who has previously derided government efforts to influence financial markets, went on the offensive with televised appearances throughout the day in which his rhetoric grew increasingly assertive.
"If I could buy stock, I'd be buying a whole lot today," he declared on ABC's "Good Morning America," adding that he continues to expect the economy to achieve "something on the order of more than 3 percent real growth next year" despite some dislocations.
In later appearances, he ventured the sort of market forecast that nearly all of his predecessors have avoided for fear of undermining their credibility. "I think it's conceivable we could be approaching the top on the Dow side in another 12 or 18 months," he said on CNN.
The market reopened amid the grim backdrop of plummeting prices overseas. In Tokyo, the Nikkei 225 index fell 5 percent, to its lowest level in almost 18 years. Hong Kong's Hang Seng index dropped 3.5 percent.
European markets were down yesterday morning, but rallied after the Fed move, and German markets rose further after the European Central Bank reduced its key interest rate by a half-point, to 3.75 percent. Major market indexes in London, Paris and Germany all ended the day higher.
On Wall Street, many stock exchange employees and traders arrived by ferries from New Jersey that docked on the east side of lower Manhattan, rather than on the west side where they usually do, so that people would not have to walk near the site of the still-smoldering rubble that was once the World Trade Center. As they stepped ashore, workers received small American flags. The Red Cross distributed face masks to combat the dust that still hung in the air. Soldiers, police officers and exchange officials set up barricades a block from the exchange, where visitors had to go through multiple checkpoints and scrutiny by a bomb-sniffing dog.
At 9:20 a.m. the floor broke out into applause to greet the firefighters, police officers and officials who among the many responsible for bringing the city and market back to a semblance of normality. "Today America goes back to business, and we do it as a signal to those criminals . . . that they have lost," declared Richard A. Grasso, the NYSE chairman.
During two minutes of silence to remember those still missing in the attacks, the usually raucous trading floor came to a halt. Many traders said their minds were still on the attack, among them Eugene Leonard Jr., a floor trader at Inline Brokers. But, he said, "It's great to get back. It's a relief to have something to do instead of constantly thinking about the situation at the World Trade Center."
By 9:44 a.m., the selling triggered a trading curb that prohibited the use of computer-generated program trading. But many professionals said the day ended about how they had expected, considering the uncertainty hanging over world affairs and the extent of market losses abroad.
"If you look at the value of the markets, relative to where Europe was, they're really just flat," said David O'Leary, president of Alpha Equity Research. "Obviously there's a lot of uncertainty because you don't know if there's more bombs to come or what the reaction is going to be."
Much of the selling, he added, was coming mainly from hedge funds, which are essentially unregulated mutual funds for wealthy investors. Some were betting on a market decline by selling short -- selling stocks they had borrowed in hopes of buying them back later at a lower prices. "That's their business," O'Leary shrugged. The market was abuzz with rumors that foreigners were also among the big sellers.
New York Mayor Rudolph Giuliani, center, Sen. Charles E. Schumer (D-N.Y.), lower right, and Treasury Secretary Paul H. O'Neill at the NYSE opening bell.A worker crosses the Brooklyn Bridge to get to his job in Manhattan's financial district on the first day of trading since the terrorist attacks.New York Stock Exchange trader Tom Cook hugs a colleague yesterday.
