Stocks plunged Friday, with the Dow Jones industrial average taking its deepest dive in more than two years, after the Federal Reserve revealed it has nudged interest rates higher.
The selloff intensified in the afternoon, triggering New York Stock Exchange measures adopted after the October 1987 crash aimed at handling excessive volatility and preserving the public's faith in the market.Nonetheless, the Dow industrial average tumbled 96.24 points, or 2.43 percent, to 3,871.42, its largest loss in terms of points since Nov. 15, 1991, when it fell 120.31. Once the measure had fallen 50 points, the NYSE implemented a rule limiting computer-guided program trading.
Market veterans noted that although dramatic, the drop in the Dow industrials merely returned the popular blue chip performance gauge to where it stood in mid-January. For the week, the average retreated 74.01 points.
Broader market indicators mirrored the Dow's setback. The NYSE composite index shed 5.97 to 261.21 and lost 4.21 in the week while the Standard & Poor's 500 fell 10.90 to 469.81 and lost 8.89 in the week.
The broadly based selling left few stocks unscathed. Declines vastly outnumbered advances - by more than 6 to 1 - on the NYSE where trading was brisk. Volume amounted to 377.82 million shares on the Big Board's floor as of 4 p.m. EST, up from 318.01 million on Thursday, making it the busiest session so far this year.
Banking and other stocks particularly vulnerable to rising interest rates were hit hard but the recently favored economically sensitive, or "cyclical," issues also took a beating.
Investment professionals surveying the damage didn't assume, however, that Friday's selloff meant the prolonged bull market advance has finally run its course. Falling rates have been the chief force behind the market's run because low rates have led people to shun interest-bearing investments in favor of equities that have comparatively higher returns.
"It's not the end of the world. But it's tough to say we're going to bounce right back," said William Dodge, chief investment strategist at Dean Witter Reynolds.
Dodge said the market's steep slide was puzzling given that the financial markets had been prepared for the Fed to switch gears toward a tighter credit posture at any time.
"This was one of the better-advertised tightenings in Fed history, coming as it did with a public announcement," he said.
Most market measures were drifting at modestly lower levels all morning until the central bank issued an unusual news release declaring that its policymaking arm unanimously voted to pursue a less generous credit course.
The rare display of openness from the Fed caught the financial markets off guard and prompted hectic trading in stocks, bonds and currencies.
Before the surprising Fed disclosure, the financial markets were focusing on the government's monthly job data showing the nation's unemployment rate was 6.7 percent in January, up 0.3 percentage points from a month earlier. The increase was due mainly to a change in the way job markets are surveyed.
Of more significance to the stock and bond markets, the Labor Department report also said non-farm payrolls grew by a surprisingly small 62,000, or much lower than the 180,000 to 200,000 jobs most economists had expected.
Moments after news of the unexpectedly small payroll growth reached the bond market, traders bought because the report eased their fears that the Federal Reserve would soon clamp down on its credit policy.
But the bond buying subsided as the markets concluded that the economy hasn't weakened enough to sway the central bank from trying to thwart inflation in the not too distant future. Fed Chairman Alan Greenspan stated earlier this week that interest rates would be raised eventually to keep inflationary pressures from building as the economic expansion accelerates.
Then the news release came and the markets no longer needed to wonder when the rate hike would occur.
The Fed's announcement said, "The decision was taken to move toward a less accommodative stance in monetary policy in order to sustain and enhance the economic expansion."
Among market indicators, the Nasdaq Stock Market composite index fell 20.51 to 777.28 and lost 19.25 in the week. At the American Stock Exchange, the market value index sank 8.89 to 478.29 and shed 4.93 in the week.
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ADDITIONAL INFORMATION
Important dates
Key historic dates for the Dow Jones industrial average of 30 stocks:
July 3, 1884 - Dow Jones publishes its first average of U.S. stocks in the Customer's Afternoon Letter, forerunner of The Wall Street Journal.
Jan. 12, 1906 - Closes above 100 for first time, at 100.25.
Sept. 3, 1929 - Reaches closing peak for the bull market of the 1920s, at 381.17.
Oct. 28, 1929 - Plummets 38.33 points, cutting nearly 13 percent of the average's value, closing at 260.64, heralding the start of the Great Depression.
March 12, 1956 - Closes above 500 for the first time, at 500.24.
Nov. 14, 1972 - Closes above 1,000 for the first time, at 1,003.16.
Dec. 6, 1974 - Closes at a 12-year low of 577.60, ending the worst bear market since the Depression years.
Aug. 17, 1982 - Rises 38.81 to 831.24, then-largest one-day gain, as a long rally begins.
Jan. 8, 1987 - Reaches 2,002.25, first close above 2,000.
Oct. 19, 1987 - Plunges a record 508 points to 1,738.74, a drop of 22.6 percent that became known as the Black Monday crash.
Oct. 13, 1989 - Falls 190.58 to 2,569.26, later dubbed the Friday the 13th minicrash.
April 17, 1991 - Reaches 3,004.46, first close above 3,000.
May 19, 1993 - Reaches 3,500.03, first close above 3,500.
Jan. 31, 1994 - Reaches 3,978.36.
Feb. 4, 1994 - Falls 96.24 points, biggest one-day drop in more than two years, to 3,871.42, after Federal Reserve nudges up interest rates.