昨晚美股情况

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Stocks Fall on Liquidity Concerns
August 9, 2007 7:48 p.m.
The liquidity investors have enjoyed for so long might be drying up.

That may not sound like much of a news flash, but it contributed to a selloff in stocks on Thursday, and it has been bothering U.S. markets lately for the first time in years after a prolonged period when the global markets were flush with a seemingly endless supply of cash.

The Dow Jones Industrial Average fell 387.18 to 13270.68, its second-worst loss of the year, trailing only Feb. 27's 416-point meltdown. It has made triple-digit moves in 11 of the past 15 sessions.

The S&P 500 lost 44.40 points to 1453.09, also its second-biggest decline this year. This was its first decline in the past four days, and it is now up just 2.5% year-to-date, compared with a 6.5% gain for the Dow. The Nasdaq Composite Index fell 56.49 points at 2556.49. This was the tech-heavy index's third-biggest drop of the year, leaving it up 5.8% since the end of 2006.

Trading curbs were put into place on the New York Stock Exchange quite early in the session. The NYSE set a record composite volume of 5.98 billion shares traded in the session, surpassing the previous record of 5.87 billion shares set on July 26.

Stocks briefly bounced back in morning trading, but tumbled again heading into the afternoon. The indexes bobbled in the last hour, and in the last few minutes took another sharp tumble to their worst levels of the day.

Larry Peruzzi, equity trader at Boston Company Asset Management, attributed the late selling to "momentum swings" and a wave of new short positions, or bets the market will fall. Technical factors also played a role, he said: "A key level [1461] on the S&P 500 should have held and didn't." He also pointed to derivatives and cash trades that created a big imbalance toward the sell side on the S&P 500 late in the day.

The fundamental cause of the selloff was "just more concerns about fund issues and exposure to subprime," said Bill Nichols, trader at Bear Stearns. "You've had a repricing of risk, and it's a reminder that volatility is still out there."

A "vicious cycle of selling to make margin calls, and bringing the market down, and selling more to make margin calls" exacerbated the market's pain, said Jack Ablin, chief investment officer at Harris Trust.

Liquidity, or the ability to turn assets into cash or trade them easily, has been looking a little more tenuous lately as leveraged buyouts and other deals have had trouble getting financing, the mortgage sector has tightened up and hedge funds have taken heavy losses.

"In some cases [financing] isn't available, in some cases it's harder to get," said Maryann Hurley, vice president at D.A. Davidson. "I think overall it's bad for everybody, because first of all, you're hurting corporate profitability, and you're tightening credit for consumers and businesses. That hurts economic growth."

But many market participants still doubt problems in the credit market will have much lasting impact. "There still are good stories in the market: the growth in the global economy and corporate balance sheets is still very strong," said Doreen Mogavero, president and CEO of Mogavero Lee & Co, in an email.

Also, many people believe that the Fed will cut rates at least once before the end of the year, and rate cuts help stocks move higher.

"Yes, it looks bad, but it always looks bad at the bottom," said Jason Goepfert, chief executive of Sundial Capital Research. "My bet would be that we see a rally in the next one to three months."

However, it is still tough to tell how the whole credit-market situation will unfold, and when a recovery can begin, because developments are still unfolding piecemeal and in surprising areas. For example, on Thursday BNP Paribas -- just a week after saying its exposure to the troubled subprime-mortgage market was minimal -- said it had suspended three funds with exposure to the U.S. credit markets as it has become impossible to accurately value them after "the complete evaporation of liquidity."

After the BNP Paribas announcement, the European Central Bank loaned an unprecedented $130 billion in overnight funds to banks at a bargain rate of 4% in order to provide more cash for a financial system jolted by BNP Paribas's news and broader credit-market woes.

"The fact that we keep getting these new headlines, and it's spreading to Europe, is really starting to worry people," Mr. Goepfert said.

"When the dust settles, we'll have half the number of hedge funds that we do now," Mr. Ablin of Harris Trust predicted.

Shortly after the ECB move, federal funds futures contracts on the Chicago Board of Trade priced in a 100% chance of a Federal Reserve rate cut in September. On Wednesday, the market odds of a cut at that time were just 25%.

In order to pump a little more liquidity into the U.S. system, the Fed arranged a 14-day repurchase agreement -- a tool the central bank uses to temporarily add to banking reserves -- of $12 billion. A little while later, it added a one-day repo agreement of an additional $12 billion.

"The Fed sent a message that they will take action," Ms. Hurley said. "I think it marginally helped" the markets, "but it underscored the idea that there is a problem."

According to Tony Crescenzi, chief bond-market strategist at Miller Tabak, the average daily size of the Fed's daily open market operations was $6.4 billion in 2005 and the size of its 14-day repos, which are announced most Thursdays, was $8.7 billion, so today's repo was bigger than usual.

"People are less willing to take the types of risks that they were before," said James Glassman, senior economist at J.P. Morgan Chase, but "my guess is [the Fed] provided more than enough" liquidity to keep the markets going. In another sign of risk-consciousness, Treasury prices rose, as investors once again took a flight to quality.

Stocks in the financial sector suffered Thursday, with Citigroup down 5.2%, Lehman Brothers Holdings off 7.2% and Bear Stearns off 5.8%. Goldman Sachs Group declined 5.7% as news came out that not only had its Global Alpha hedge fund endured a beating last month, but its North American Equity Opportunities hedge fund had also taken some knocks in July. Much of the concern about risk and investment damage has been targeted at the financials, which have been big beneficiaries of the liquidity largesse and are now suffering the fallout as it unwinds and hits their investments. News has been coming out almost every day about hedge funds that absorbed big losses in July.

Also, shares of Dow component Home Depot fell 5.3% after the company cut the price on its tender offer to $37-$42 from $39-$44 and said it may lower the $10.3 billion sale price of its HD Supply unit to three private-equity firms. Home Depot has traded below or just above the previous tender offer minimum price in recent days as investors worried this might happen amid credit-market turmoil.

Oil prices fell amid expectations that economic weakness could weigh on demand, with the September-dated light crude contract down 56 cents to $71.59 a barrel, leaving it up 17% on the year. It has fallen four of the last five days.

In currency markets, the dollar strengthened against the euro, but the yen surged against the dollar as carry trades -- in which traders borrow low-yielding currencies to buy high-yielding currencies -- unwound amid credit-market worries.

Some of the home builders were experiencing a huge rally amid the broader downturn, likely propelled by short covering. Hovnanian Enterprises added 10%, while Beazer Homes gained 12%.

Investors were also keeping one eye on the latest same-store sales data for July, which were looking disappointing. Retailers such as AnnTaylor Stores and Bebe Stores missed expectations. However, Costco and J.C. Penney came in above forecasts, and Wal-Mart Stores posted a small gain.

In major market action:

Stocks retreated. On the New York Stock Exchange Thursday, 721 stocks rose and 2,624 fell, on record composite volume of 5.98 billion shares traded in stocks listed on the exchange.

Bonds were mixed. The benchmark 10-year note rose 14/32, or $4.375 for every $1,000 invested, to 99-23/32, to yield 4.788% Thursday. The 30-year bond fell 4/32 to 95-23/32, to yield 5.030%.

The dollar was mixed. The dollar was at 118.20 yen, from 119.69 yen Wednesday. The euro was at $1.3679 from $1.3797 late Wednesday.

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