The Dow Jones industrial average capped its worst week ever yesterday in volatile trading that saw stocks fluctuate in a 1,000-point range for the first time. Bargain hunters snatched up stocks ravaged in recent days and staged a final-hour rally that alleviated even deeper losses.
The Dow and S&P; 500 lost a little more than 1 percent yesterday, while the Nasdaq eked out a gain of 4 points to close at 1,649.51.
It marked the eighth straight day of declines for the Dow, which posted the worst week in its 112-year history, in terms of points and percentage decreases. The Dow shed 1,874.19 points, or 18.2 percent this week, breaking the previous record set in July 1933 during the Great Depression. The S&P; shed 200 points or about 18 percent for the week, its worst showing in 75 years. It closed at 899.02 yesterday.
The weekly declines erased $2.4 trillion in market value based on the Dow Jones Wilshire 5000, which includes most public companies.
Last night, Treasury Secretary Henry M. Paulson Jr. said the Bush administration will move ahead with a plan to purchase stock in financial institutions, in a move to help restore confidence in the banking system and thaw frozen credit markets. The government, which last used such powers during the Great Depression, will make direct purchases of stock in banks as part of the $700 billion measure that Congress passed last week to rescue the U.S. financial system.
Paulson announced the administration was moving forward with the program at the conclusion of discussions among finance officials of the Group of Seven major industrialized countries. That group endorsed the outlines of a sweeping program to combat the worst global credit crisis in decades.
Recent market declines have taken a toll on workers with 401(k) accounts who have seen years of gains eliminated. They have flooded plan administrators with phone calls seeking advice. But the vast majority of workers did not make changes to their retirement accounts, 401(k) administrators said.
The hair-trigger mentality of the market - a reflection of the intense anxiety on Wall Street - was evident from the opening bell yesterday. The Dow fell 696 points in the first 15 minutes, dipping below 8,000 for first time in five years. It recovered to an advance of more than 100 before the first hour was over, then turned sharply lower again before moving in swings of hundreds of points at the day's end.
It closed down 128 points to 8,451.19.
"Unbelievable. The last hour was as crazy as it gets," said Morry Zolet, senior vice president of wealth management at Smith Barney in Lutherville.
President Bush said yesterday morning that the government's efforts to rescue the financial sector were powerful enough to succeed but that it would take some time to be fully implemented.
"Investors now have really given up on any kind of faith in the central bankers and Treasury officials globally to get us out of a worldwide recession," said Sam Stovall, chief investment strategist at Standard & Poor's.
Stovall said he figured the market hit bottom a couple of weeks ago, based on the signs. For example, 98 percent of the 130 industries in the S&P; 500 index are down over a six-month period. That happened shortly before the low point of the last bear market on Oct. 9, 2002.
"We have seen this market adopt a glide path of a crowbar. Now it's totally trading on emotions. We have no idea where it's going to end," he said.
A bear market is generally defined as a 20 percent decline from a market high. Some experts say the market has gone well beyond bear territory and has crashed. The Dow is down more than 40 percent from its all-time high of 14,164.53 reached a year ago. The S&P; is down 42.5 percent since that time.
"Anything that moves with this much velocity is a crash," said Howard Silverblatt, senior index analyst for Standard & Poor's. "This is a movement like we have never seen before."
The S&P; 500 fell at least 1 percent each day during the past seven days. That has never happened in the index with roots back to 1928, he said.
Jittery investors are calling financial advisers.
"It was the busiest day ever I had in my career," said Smith Barney's Zolet, a 25-year industry veteran.
For many Americans, their exposure to the stock market comes through their employer's 401(k).
At Principal Financial Group, which administers 401(k)s with 2.9 million participants, calls are up 50 percent after the big market declines of the past few weeks, said Barrie Christman, a vice president. Call volume reached a peak after the Dow saw a record daily drop of 778 points last week.
Callers are asking what they should do, whether their money is safe and whether their employer can raid their account if it needs the money, Christman said. "We calm them down" and assure them that their employer can't tap their accounts, he said.
Financial Engines, which manages 401(k) accounts for 350,000 workers, has seen a 70 percent increase in calls during the past six weeks.
"People are longing for a little reinforcement," said Christopher Jones, chief investment officer. "The most important thing we can do here is help people keep things in perspective. The last few days have been gut-wrenching."
Workers have stayed on track and haven't made a knee-jerk flight to money market funds, he said.
Baltimore's T. Rowe Price Associates, which administers plans with 1.7 million participants, gets questions about the stability of the company and the safety of money market funds as well as stable value funds, said spokesman Brian Lewbart.
"There is a lot of seeking reassurance, seeking confirmation that their investments are safe," he said. Investors in Price's money market funds have never lost their principal, but the company said this week that it would join a government insurance program for money market funds to further reassure shareholders.
Several plan administrators say they see little shift in assets. And workers so far aren't reducing contributions to 401(k)s.
Hewitt Associates, which administers plans with about $106 billion in assets, has noticed a slightly higher shift in assets than usual during the past month. Most of the money has been transferred out of U.S. and foreign stock mutual funds and into more conservative investments, such as money market funds and stable value funds that hold short-term bonds and carry insurance protection, said Pamela Hess, director of retirement research.
Some investors hope this week offered a glimpse of the market's bottom and that it's time to buy.
"Some folks are saying, 'Hey, this is overdone. I see value here,' " said Dick O'Brien, executive vice president of brokerage Folger Nolan Fleming Douglas in Hunt Valley.
The Associated Press contributed to this article.