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<TABLE cellSpacing=0 cellPadding=0 width="100%" border=0><TBODY><TR>Wall Street's scariest hour
</TR><!-- headline one : end --><TR>3pm is when trading activity goes into overdrive </TR><!-- show image if available --><TR vAlign=bottom><TD width=330>
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<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->NEW YORK: It has become the scariest hour on Wall Street.
On Wednesday, in what has become an almost daily occurrence, the stock market lurched at 3pm - this time, down.
What had been a bad day ended as one of the worst in history, with the Dow Jones Industrial Average plummeting 733 points, or nearly 8 per cent.
The late-day move - the Dow shed nearly 400 points in the last 45 minutes of trading - mirrored the market's pattern over much of the last week. Last Friday, the Dow plummeted more than 500 points in the last hour of trading. On Monday, it soared about 300 points.
Market experts offered a variety of explanations for the late sell-off on Wednesday.
Some pointed to gaping losses at hedge funds, among them the Citadel Investment Group. Others cited margin calls that forced investors and executives to dump shares into a falling market. Still others saw panicky selling by individuals and money managers.
There was also a simpler explanation: The economy is in trouble and the recession may be longer and deeper than initially feared. Those concerns were reinforced on Wednesday morning by a report that showed that retail spending declined last month, and in the afternoon by downbeat comments by Federal Reserve chairman Ben Bernanke.
'This sell-off is about the economy and it will be exacerbated by margin calls,' said Mr Todd Steinberg, head of global equities and commodity derivatives at BNP Paribas.
'The primary reason for the sell-off today is the realisation that the impact on the real economy will be greater and longer than people had anticipated.'
Whatever the cause, one thing is clear: This is one of the worst bear markets in post-war history. The Dow closed at 8,577.91, and the broader Standard & Poor's 500-stock index fell 90 points, or 9 per cent, to 907.84.
It was one of the worst days for both indexes. The last two days have erased most of their 11 per cent rally on Monday.
But given the market's moves over the last week, the final hour of trading is coming under scrutiny on Wall Street. Many analysts are asking the same question: Why is the market moving so violently between 3pm and 4pm? While trading often spikes in the last hour, according to a review of stock exchange data, the pattern has been much more pronounced in recent days.
One explanation, analysts say, is that brokers typically demand that clients pay down margin loans by the end of the day. As some of those clients begin to sell to raise money to cover those loans, prices fall further, forcing others who bought on margin to sell as well.
'This smells like that sort of forced selling, the margin calls and liquidations, that you get in the midst of a bear market,' said Mr Barry Ritholtz, author of the popular blog The Big Picture.
Evidence is mounting that some executives are being forced to sell stock to meet margin calls.
Mr Bruce Smith, the chief executive of Tesoro Corporation, an oil refiner, disclosed in a securities filing late on Tuesday that he had to sell 251,000 shares because of a margin call by Goldman Sachs. Shares of his company fell more than 18 per cent after his sale was made public.
Top executives at publisher Scholastic Corporation and medical device company Boston Scientific also disclosed forced sales this week.
Still, banking executives said they did not think the margin calls on their own were leading to the drop in stock prices.
Forced selling always increases when the price of stocks and bonds falls, but by and large, they said, the selling was driven by the bearish attitude of investors. Hedge funds, which control nearly US$2 trillion (S$3 trillion) in assets and are big users of borrowed money, were also among those forced to sell, say analysts and industry officials, though it remains unclear how big a role they are playing in the recent sell-off.
Banks like Goldman and Morgan Stanley had been increasing the rates they charge hedge funds to borrow all year long, but in the last three weeks, Wall Street firms increased those rates aggressively, according to some officials. That was partly because the banks themselves were paying more to borrow money. NEW YORK TIMES
</TR><!-- headline one : end --><TR>3pm is when trading activity goes into overdrive </TR><!-- show image if available --><TR vAlign=bottom><TD width=330>
</TD><TD width=10>
<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->NEW YORK: It has become the scariest hour on Wall Street.
On Wednesday, in what has become an almost daily occurrence, the stock market lurched at 3pm - this time, down.
What had been a bad day ended as one of the worst in history, with the Dow Jones Industrial Average plummeting 733 points, or nearly 8 per cent.
The late-day move - the Dow shed nearly 400 points in the last 45 minutes of trading - mirrored the market's pattern over much of the last week. Last Friday, the Dow plummeted more than 500 points in the last hour of trading. On Monday, it soared about 300 points.
Market experts offered a variety of explanations for the late sell-off on Wednesday.
Some pointed to gaping losses at hedge funds, among them the Citadel Investment Group. Others cited margin calls that forced investors and executives to dump shares into a falling market. Still others saw panicky selling by individuals and money managers.
There was also a simpler explanation: The economy is in trouble and the recession may be longer and deeper than initially feared. Those concerns were reinforced on Wednesday morning by a report that showed that retail spending declined last month, and in the afternoon by downbeat comments by Federal Reserve chairman Ben Bernanke.
'This sell-off is about the economy and it will be exacerbated by margin calls,' said Mr Todd Steinberg, head of global equities and commodity derivatives at BNP Paribas.
'The primary reason for the sell-off today is the realisation that the impact on the real economy will be greater and longer than people had anticipated.'
Whatever the cause, one thing is clear: This is one of the worst bear markets in post-war history. The Dow closed at 8,577.91, and the broader Standard & Poor's 500-stock index fell 90 points, or 9 per cent, to 907.84.
It was one of the worst days for both indexes. The last two days have erased most of their 11 per cent rally on Monday.
But given the market's moves over the last week, the final hour of trading is coming under scrutiny on Wall Street. Many analysts are asking the same question: Why is the market moving so violently between 3pm and 4pm? While trading often spikes in the last hour, according to a review of stock exchange data, the pattern has been much more pronounced in recent days.
One explanation, analysts say, is that brokers typically demand that clients pay down margin loans by the end of the day. As some of those clients begin to sell to raise money to cover those loans, prices fall further, forcing others who bought on margin to sell as well.
'This smells like that sort of forced selling, the margin calls and liquidations, that you get in the midst of a bear market,' said Mr Barry Ritholtz, author of the popular blog The Big Picture.
Evidence is mounting that some executives are being forced to sell stock to meet margin calls.
Mr Bruce Smith, the chief executive of Tesoro Corporation, an oil refiner, disclosed in a securities filing late on Tuesday that he had to sell 251,000 shares because of a margin call by Goldman Sachs. Shares of his company fell more than 18 per cent after his sale was made public.
Top executives at publisher Scholastic Corporation and medical device company Boston Scientific also disclosed forced sales this week.
Still, banking executives said they did not think the margin calls on their own were leading to the drop in stock prices.
Forced selling always increases when the price of stocks and bonds falls, but by and large, they said, the selling was driven by the bearish attitude of investors. Hedge funds, which control nearly US$2 trillion (S$3 trillion) in assets and are big users of borrowed money, were also among those forced to sell, say analysts and industry officials, though it remains unclear how big a role they are playing in the recent sell-off.
Banks like Goldman and Morgan Stanley had been increasing the rates they charge hedge funds to borrow all year long, but in the last three weeks, Wall Street firms increased those rates aggressively, according to some officials. That was partly because the banks themselves were paying more to borrow money. NEW YORK TIMES
