Wall Street tumbles as housing fears weigh

07/26/2007

By Roland Jones
Associate editor
MSNBC
July 26, 2007


NEW YORK - Stock prices plunged Thursday, sending the Dow Jones industrial average down more than 300 points as the downturn in the nation’s housing market showed signs of worsening, sparking concerns about a broader economic slowdown.

The huge stock sell-off extended weeks of volatility for Wall Street. A series of frenetic sessions over the past month — including many triple-digit swings in the Dow — have reflected investors’ attempts to grasp whether the turmoil in the mortgage market is confined to the a narrow segment of the industry or will lead to more widespread problems.

Thursday’s sell-off was the worst since markets plunged worldwide in February. At one point during Thursday’s session the Dow was off as much as 449 points, although prices recovered somewhat in the last hour of trading.

Traders attributed the market’s improvement to comments from Treasury Secretary Henry Paulson, who in an interview on Bloomberg TV downplayed the economic impact of so-called subprime mortgages -- loans made to home buyers with poor credit histories.

At the close the Dow, which last week closed at a record 14,000, was off 311.50 points or 2.3 percent, ending the day at 13,473.57.

Prices on Treasury securities such as bonds rose as investors moved money away from stocks and into the relative security of fixed-income investments. That suggests investors have decided that problems affecting subprime loans will spread, leading to a more difficult environment for corporate borrowing that ultimately could hamper economic growth, said Hugh Johnson, chief investment officer of Johnson Illington Advisors.

“When you have this sort of sharp decline in stock prices and a rise in bond prices investors are saying they’re deeply concerned about the outlook for the economy,” Johnson said.

A sharp rise in oil prices, which are trading near $77 a barrel for the first time since last summer, and mixed second-quarter earnings reports from major names like Ford and Exxon Mobil were factors in the market drop, but not hugely significant ones, Johnson added.

“It’s not all about oil or earnings — they are part of our daily lives now, and they don’t cause this sort of decline,” he said.