Wall St. Suffers Worst Day in Two Years
Wall St. Suffers Worst Day in Two Years
2 minutes ago
By MICHAEL J. MARTINEZ, AP Business Writer
NEW YORK - Wall Street suffered its worst single day
in nearly two years Friday, with the Dow Jones
industrial average falling 191 points for its third
straight triple-digit loss. Deepening concerns over
economic growth and higher prices led to the worst
week of trading since August.
An already uneasy market began the biggest one-day
selloff since May 19, 2003, after the Federal Reserve
reported drops in manufacturing and other industrial
production, and a Labor Department report showed
higher oil costs driving up import prices.
The selloff was bolstered by lower-than-expected
profits from IBM Corp., which led to fears that
technology spending would be substantially worse than
expected this year. Strong earnings from General
Electric Co. and Citigroup Inc. were overlooked, but
analysts said earnings would nonetheless be a key
factor in overcoming the recent slump.
"Earnings are really the only hope for this market,"
said Brian Pears, head equity trader at Victory
Capital Management in Cleveland. "If, on the whole,
earnings can go up, then we might be able to overcome
oil and inflation and all the other things."
According to preliminary calculations, the Dow fell
191.24, or 1.86 percent, to 10,087.51, after falling
125 points Thursday and 104 points Wednesday. It was
the Dow's lowest close since Nov. 2.
Broader stock indicators also lost considerable
ground. The Nasdaq composite index dropped 38.56, or
1.98 percent, to 1,908.15 for its worst showing since
The Standard & Poor's 500 index was down 19.43, or
1.67 percent, at 1,142.62, its lowest level since Nov.
All three indexes set five-month lows for the second
straight session, prompted by disappointing earnings
in the tech sector and questions about slowing
economic growth. With Friday's losses, it was the
first time the Dow lost 100 points three sessions in a
row since late January 2003.
For the week, the Dow lost 3.57 percent, the S&P 500
was down 3.27 percent, and the Nasdaq tumbled 4.56
percent. The major indexes are also at their lowest
points of 2005, with the Nasdaq down 12.29 percent,
the Dow falling 6.45 percent and the S&P having lost
Bond investors were pleased with Friday's results,
however, as the bond market continued to rally. The
yield on the 10-year Treasury note fell to 4.24
percent from 4.34 percent late Thursday. The dollar
was mixed against other major currencies, while gold
prices moved higher.
Crude oil prices were lower and continued a two-week
downtrend, with a barrel of light crude settling at
$50.49, down 64 cents, on the New York Mercantile
The recent drop in crude futures notwithstanding,
higher oil prices are to blame for the jump in import
prices, the Labor Department said. Import costs rose
1.8 percent in March, but even without oil, prices
rose 0.3 percent, more than the 0.2 percent rise
economists had expected.
"There's a lot of evidence that when we have oil
averaging $53 or $54 per barrel, that's inflationary,
and we got a whiff of that today in the import
prices," said Peter Cardillo, chief strategist and
senior vice president with S.W. Bach & Co. "It doesn't
help that we're starting to see the economy enter a
slowing mode heading into the second quarter here."
Investors looking at the Fed's industrial output
report also questioned whether higher energy and
materials costs were affecting manufacturing growth as
well. Overall industrial production rose 0.3 percent
in March, up from 0.2 percent in February, but the
increase came only from utility production due to a
colder-than-average month, and manufacturing and other
industrial sectors showed losses for the first time in
IBM said an inability to close deals before the end of
the quarter, combined with higher pension costs,
dragged on its earnings. The technology company, which
missed Wall Street forecasts by 6 cents per share,
hinted at a major restructuring this year. IBM tumbled
$6.94, or 8.3 percent to $76.60, and was the biggest
loser on the Dow.
General Electric rose 25 cents to $35.75 after the
industrial and media conglomerate reported a 25
percent jump in first-quarter profits, with nine of
the company's 11 disparate divisions reporting
double-digit growth. The company's forecasts for the
second quarter and full year were in line with Wall
Citigroup beat Wall Street's expectations for its
quarterly profits by 2 cents per share, with profits
rising a modest 3 percent year-over-year. The
financial company also said its board had authorized
the repurchase of an additional $15 billion in stock.
Citigroup added 35 cents to $45.75.
The lagging pharmaceutical sector saw new life after
Genentech Inc. reported strong results from trials of
its Avastin drug in breast cancer patients, and Ely
Lilly & Co. received a favorable patent ruling on its
best-selling anti-psychotic drug Zyprexa. Genentech
surged $10.72, or 18.3 percent, to $69.35, while Lilly
climbed $2.91 to $58.07.
Declining issues outnumbered advancers by more than 4
to 1 on the New York Stock Exchange, where preliminary
consolidated volume came to 2.71 billion shares,
compared with 2.38 billion on Thursday.
The Russell 2000 index of smaller companies was down
11.16, or 1.89 percent, at 580.78. The Russell lost
4.91 percent this week and is down 10.86 percent for
Thursday's losses in U.S. markets had a ripple effect
overseas, as the Nikkei stock average fell 1.66
percent. In Europe, Britain's FTSE 100 closed down
1.09 percent, France's CAC-40 lost 1.92 percent for
the session, and Germany's DAX index tumbled 2.04
The Dow Jones industrials ended the week down 373.83,
or 3.57 percent, finishing at 10,087.51. The S&P 500
index lost 38.58, or 3.27 percent, to close at
The Nasdaq fell 91.20, or 4.56 percent, during the
week, closing Friday at 1,908.15.
The Russell 2000 index, which tracks smaller company
stocks, closed the week 29.97, or 4.91 percent, lower
The Dow Jones Wilshire 5000 Composite Index � a
free-float weighted index that measures 5,000 U.S.
based companies � ended the week at 11,246.79, off
387.80 points from last week. A year ago the index was
The Wilshire 5000 dropped 446.24 points, or 3.82
percent, in the past three sessions, the largest
percentage drop since Nov. 11, 2002, when the
total-market index fell 5.1 percent.
On the Net:
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
- Bush Points to a Retirement System With Mixed Results
By Peter G. Gosselin and Edwin Chen, Times Staff Writers
KIRTLAND, Ohio President Bush came to Ohio on Friday to highlight a
state retirement savings system that he said showed that Americans
would be better off handling their own old-age investments through
personal accounts than relying on traditional Social Security.
But that state's version of personal accounts has attracted few takers
among the people eligible Ohio's 750,000 public employees. And
records show that the most widely chosen version of the state-offered
accounts has racked up a five-year earning record of 1.86%, about the
same return that the president says Social Security produces.
"Boy, does he have a hard sell ahead of him in using Ohio as his
example," said Keith Brainard, research director of the National Assn.
of State Retirement Directors, which represents virtually all of the
nation's public employee pension plans.
"Ohio's individual account programs are only a few years old, and in
the short time they've been around, investment returns have been
relatively weak." Brainard said.
Coming two weeks before the end of his "60 Stops in 60 Days" campaign
to convince the nation that Social Security needs to be reshaped,
Bush's Ohio appearance illustrated the difficulty the president faced
in promoting his plan to a nation edgy about a still-uncertain
economic recovery and a stock market that had taken a steep dive in
Bush has proposed allowing workers under 55 to divert a portion of
their Social Security taxes into private stock and bond accounts. In
return, they would agree to a cut in their traditional Social Security
The president has said the private accounts should be part of a
broader plan to shore up the shaky finances of the Social Security
system. That broader, still-undefined plan might include further
benefit cuts or tax increases.
But several recent polls show the president's proposal losing ground
amid concerns that private accounts would require Americans to
shoulder more economic risk for the possibility of a greater reward.
And the president's cause was unlikely to be helped by a stock market
that wrapped up its worst week in two years Friday, with the Dow Jones
industrial average diving 191 points. The Dow slumped 3.6% for the
week, and the tech-heavy Nasdaq index fell nearly 5%.
None of this appeared to faze Bush, however, as he took the stage at
Lakeland Community College in Kirtland to lavish praise on an Ohio
public employee retirement system that he said held important lessons
for the White House and Congress in how to restructure Social Security.
"We need to come together in Washington to work on a permanent fix
[for Social Security]. All options are on the table," Bush declared.
But he quickly suggested that any overhaul include personal accounts,
which congressional Democrats have said they will adamantly oppose if
as Bush has proposed they involve diverting payroll tax revenue
from the existing system.
Part of any Social Security fix, the president told his audience,
should be "to trust people with their own money, to devise a system
that would work similar to the state of Ohio, that would say, 'We're
going to let you earn a better rate of return for your money.' "
But in the biggest of Ohio's several state retirement programs, the
popularity of the private accounts and the returns they produce are
Ohio is one of half a dozen states that have begun to offer
401(k)-like retirement accounts through which eligible employees can
invest in a handful of state-screened mutual funds or other portfolios.
Employees who choose accounts risk losing money if the value of their
investments falls, but reap most of the reward if the value rises.
Ohio has continued to offer traditional pensions, where the state
bears the risk and promises to pay retirees a certain amount for as
long as they live. Employees can choose between the traditional
pension and the private accounts, or pick a plan that mixes the two.
The state began offering the private accounts to state college
faculties in 1998, and extended them to other workers early in this
decade. Ohio has five major retirement systems for teachers, police,
firefighters and other public employees.
It was unclear from the president's remarks and from an
administration-issued news release which of the five plans Bush was
discussing in his appearance Friday, or what option he was focusing
on. The White House referred calls to spokesman Trent Duffy, who could
not be reached.
But in the biggest of the state's plans the 522,000-member Ohio
Public Employees Retirement System, or OPERS the personal account
option has not proven particularly popular among state workers, or
delivered a particularly good rate of return.
About 10,000 of those eligible for personal accounts less than 5%
have signed up for the accounts since they became available at the
start of 2003, according to Laurie Fiori Hacking, OPERS' executive
Of those who have chosen the accounts, most have directed that their
money be invested in the system's "moderate" or "aggressive" pre-mixed
portfolios, according to spokesman Richard Baker.
OPERS records show that the "moderate" account lost money in two of
the last four years and during the first three months of this year. It
posted a five-year annualized return of 1.86%.
That compares to the 1.8% that Bush said Friday was the rate of return
for Social Security.
The OPERS "aggressive" portfolio had a five-year return of 0.26%.
By contrast, the fund that pays for the system's traditional pensions,
which is handled by professional money managers, had a five-year
return of 3.52%.
Personal accounts have also had relatively few takers in the state's
other big plan, the State Teachers Retirement System of Ohio, where
12,500 of the plan's 225,000 members less than 6% have chosen
personal accounts, said Laura Ecklar, spokeswoman for the teachers' system
Ecklar said it was impossible to tell how personal account holders had
fared, because no single investment option offered by the teachers'
retirement system was so favored by participants that it could serve
as a representative for all.
During his Ohio appearance, the president was accompanied by several
retirement plan participants.
Among them was a University of Cincinnati employee who said she was
making 6% on a "guaranteed" account that sets a floor under and a cap
on what people can make. Another person said he was making 7.1% on a
In a pitch directed to Democratic lawmakers, who are nearly unanimous
in opposing Bush's plan to create Social Security personal accounts,
the president called for "political amnesty" for those who joined his
drive to retool the retirement program.
"All ideas are on the table," he asserted at several points in his
His declaration appeared to reinforce a suggestion made Thursday by
his top economic advisor, Allan B. Hubbard, that the voluntary
retirement accounts might be acceptable to Bush even if they were
offered as an "add-on" to Social Security, instead of being financed
by current payroll taxes, as the president was advocating.