Stocks plunged more than 2 percent Thursday in Wall Street's worst sell-off since February. The Dow Jones Industrial Average dropped 311.50 points to close at 13,473.57.
Worries about mortgage defaults, temporarily ignored when stocks were soaring to new highs, returned this week with a vengeance. On top of that, there are new concerns that the private equity buyout binge might be hitting a wall.
"Investor psychology can change on a dime," said Jeffrey Saut, chief investment strategist for Raymond James & Associates in St. Petersburg. He and others evoked memories of 1989, when the failure of United Airlines' leveraged buyout bid reverberated through the financial markets.
"We're potentially having a financial seizure," he said. "You had the banks putting together these bridge loans (to finance mergers and acquisitions) that they thought they were going to sell off to the public, only the public won't buy now."
High-yield investors are refusing to buy bonds at the yields and terms the banks want, which means either deals won't go through or the cost to issuers will go up.
"This goes to market liquidity and the underlying strength of the big financial companies," said John Carlson, an analyst with Doyle Wealth Management in St. Petersburg. Until Thursday, he said he thought the stock market was absorbing the problems very well.
"This to me is the first sign that we could have a sell-off that is not orderly," he said. Carlson noted that stocks were down nearly across the board, not just in immediately affected industries.
St. Petersburg money manager Tim McIntosh of Strategic Investment Partners said he's pessimistic about the market over the next few months, but expects a recovery toward the end of the year.
"You've still got a lot of fear and panic in the market," he said. He said health and technology stocks are two of the best sectors to be in now, while energy has had its run and the financial sector is continuing to struggle.
Compounding Thursday's concerns were a report of a 6.6 percent drop in new home sales last month and Wells Fargo & Co.'s announcement that it will close its subprime wholesale lending business.
Some are worried that problems in the mortgage market might spread beyond the subprime sector to borrowers with good credit.
Housing stocks have continued to be hammered. One of the biggest losers Thursday was home builder WCI Communities Inc.
Shares in the Bonita Springs-based company fell $1.45, to $9.87, shedding nearly 13 percent of its value.
Helen Huntley can be reached at firstname.lastname@example.org or (727) 893-8230.
Bad day on the bay
Thursday was bad for nearly all Tampa Bay area stocks. Big losers: First Advantage Corp., down $1.81; Walter Industries, off $1.37; and Catalina Marketing, down $1.05. The brightest spot: MarineMax, which reported earnings and rose $1.11.