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Dow dives more than 1,000 points despite attempts by Fed to calm investors

Jim Puzzanghera, Los Angeles Times on

Published in Business News

WASHINGTON -- Stocks plunged again Thursday, with the Dow Jones industrial average diving more than 1,000 points for the second time this week despite attempts by Federal Reserve officials to calm nervous investors.

The Dow is down 10 percent from the record high it hit in late January -- the level considered a market correction. The broader Standard & Poor's 500 index and the technology-focused Nasdaq composite closed Thursday near correction levels as well.

Such 10 percent adjustments are frequent occurrences, analysts said, but the speed with which it has happened after a long stretch of record-breaking market highs can be unsettling to average investors.

"Corrections normally can take weeks to develop, and this clearly developed in a few days," said Brett F. Ewing, chief market strategist at research firm First Franklin Financial Services.

"I would tell the average person to stay calm, do not react, especially off your emotions watching this right now," he said. "When people go through extended periods of low volatility and they see this, it can make it feel even bigger than it really is. The underlying fundamentals of the economy are really strong."

But it's that strength, particularly rising wages in a tight labor market, that is driving fears that interest rates will start rising more quickly than anticipated to keep the economy from overheating.

 

The Dow dropped 1,032.89 points Thursday, it's second-largest point drop, to 23,860. The largest point drop was just three days ago, when the Dow plunged 1,175 points.

But because the Dow has reached such high levels, the percentage drops are well below those seen in the 2008 financial crisis and other market crashes. Thursday's decline was 4.2 percent.

The S&P 500 dropped 3.8 percent, and the Nasdaq was down 3.9 percent.

"We haven't seen volatility like this certainly in the past two years," said Brad McMillan, chief investment officer at brokerage firm Commonwealth Financial Network, who added that the declines are part of a normal adjustment in stock prices after a long stretch of indexes setting multiple records.

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