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Steep Declines for Dow, Nasdaq

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

LOU WATERS, CNN ANCHOR: We have a sell-off going on on Wall Street, we are past 500 points down on the Big Board for the Dow Jones industrial averages, we have Nasdaq down almost 287 points.

And we have our financial man, Myron Kandel, on the desk in New York to tell us what is going on -- Mike.

MYRON KANDEL, CNN FINANCIAL EDITOR: Well, Lou, it's really been some carnage on Wall Street all week, and it is accelerating today. Some people thought the market might bounce today, but if it bounced, it was a big downward bounce. As you indicated, the Dow down more than 500 points. Now that's about a 4 1/2 percent loss today alone. The Nasdaq down about more than seven percent today alone.

Just to put it in a week's perspective, I've never seen a week like this. The Nasdaq is down well over 1000 points for the week, as a whole, that is a loss of 20 percent, just these five days, and today isn't over.

So it is very glum day on Wall Street -- Lou.

WATERS: They don't use the word panic lightly around there. Is this a panic deal or is this just based on the inflation report that came out today?

KANDEL: Lou, if you -- the word "panic" is really not appropriate for today. I will tell you why, selling on the New York Stock Exchange has been relatively light for such a big drop, less than a billion shares have traded so far, and recent standards that's not that many.

On the Nasdaq, however, it is a heavy day of trading. The Nasdaq has traded just about two billion shares so far, with over an hour left to go. But we haven't seen any signs of outright panic selling, at least not yet -- Lou.

WATERS: So this use of words up on Wall Street is always very interesting. We've been hearing correction now for weeks. Would this be something more than a correction, would the word "bear" be used now?

KANDEL: Well, Lou, a correction is when a market falls 10 percent. As I indicated, the Nasdaq has from a recent high -- the Nasdaq is down 33 percent from a high it set just a month ago. Now that's a lot more than 20 percent. The classic definition of a bear market is a prolonged period of decline in the stock market. Now we haven't seen that yet, just a month, we've had 23 sessions.

What's really amazing, though, is the velocity and the ferocity of the move on the downside. I mean, as I indicated, more than 1000 points this week alone, 33 percent down in a month for the Nasdaq, and that's having a lot of people feeling very bearish.

The question is: How long will this last? Some people are thinking, well, maybe today is the sell-off that would clear the air and make way for a rebound in the market. Other people think that the market still has a way to go on the way down -- Lou.

WATERS: Factor in the Federal Reserve, now, Mike. We've been hearing, with all of these interest rate increases, folks up there on Wall Street saying there's no sign of inflation, all indicators are good, why raise the interest rates? Now we have the signs of inflation and we have the indication that there will be more interest rate increases and that also has a negative effect on the market.

KANDEL: Well, that's right, Lou, except that everybody on Wall Street, or at least everybody I have spoken to, thought that the Federal Reserve would raise interest rates again when it meets in May. And now that feeling is reinforced. A few people are beginning to talk, well, instead of a quarter of a point raise in rates maybe the Fed would raise a half a point. The consensus is still a quarter of a point, but that's been factored into the market, everybody expected that to happen. So this drop is really can't be a tribute to the Fed, and some people think that Fed Chairman Alan Greenspan is not too unhappy, he wouldn't admit it, but he was worried that stock prices were getting ahead of themselves, that was creating the kind of wealth effect that would add to the economy, which is red hot to begin with.

This could cool off -- this certainly has cooled off the market, could cool off the economy as well, and make it less imperative for the Fed to raise interest rates. So there's that other side of the coin -- Lou.

WATERS: Mike, the Dow has dropped 31 points since we've been talking here. Any chance they will put the stops on trading today?

KANDEL: Actually, yes, down 30 points more. The Dow right now is down 531 points. We have these circuit breakers and collars that kick in at certain levels. We haven't seen it yet, but that could happen.

We have another hour of trading left to go. In the last few sessions, when the Dow -- when the market showed signs of recovering or even being on the plus side, selling came in in the final hour of trading. A lot of the experts think there may be some more selling ahead. If so, that will send these prices even lower than they are now.

The other side of the coin, there is always two sides of a coin on Wall Street is that there could be some bargain hunters coming in because some of these prices haven't been seen for a while. They are getting down to the point where some of the big institutions, as well as some individuals, may decide that this is a time to pick up some bargains, certainly by recent standards some of those stocks are extremely lower priced -- Lou.

WATERS: So we watch and we wait, and see what happens, Myron Kandel in New York -- Natalie.

NATALIE ALLEN, CNN ANCHOR: The numbers right now, they are moving faster that I can write them down, the Dow down 529 points, the Nasdaq down some 301 points.

So let's talk more about what we are seeing, let's ask Bill Glasgall, in New York. He is senior editor for "Business Week" magazine.

Thank you, Bill, for coming in.

BILL GLASGALL, SENIOR EDITOR, "BUSINESS WEEK": You are welcome, Natalie.

ALLEN: ON quite a day here. What is your thinking about what we are seeing today, is this result of inflation fears. these reports that have come out today?

GLASGALL: I think that that's a big part of it. You know, for months and month and months, Greenspan has been talking about his concerns about the overvalued stock market and all the wealth gains that are coming from it, feeding too hot an economy, but nobody worried about inflation. Today people started worrying about inflation because that core inflation rate, minus oil, was pretty bad. And on top of that, you see signs of oil starting to feed into the whole economy, especially in the area of transportation, fuel prices, airline prices and the like.

And you add the two together, and it says, well, the next time the Fed meets, they are not going to put interest rates on the back burner like everybody thought. They are going to put it on the front burner, unless something in the stock market causes them to think otherwise.

ALLEN: So these are realistic fears, then, you think people are dealing with?

GLASGALL: I think so and, look, sooner or later, there was going to be a moment of reckoning. You can't have stocks selling at 70 times earnings, 90 times earnings, 100 times earnings, and stock with no earnings selling at fantastic prices just betting on something that may happen. If you've got an environment where rates are rising it's not good news.

ALLEN: Now, I was going to ask you about this comment I was reading, "The frenzy for technology stocks gave many young, unproven companies market values they did not yet deserve." Do you agree with that?

GLASGALL: Sure, and gave many unproven investors profits they probably didn't deserve either. But a lot of people bought on momentum, it is going up, you buy it. Eventually something like that is going to come to an end.

Now you do have to consider a couple of factors here. One is that interest rates are much lower than they were back in 1987, when we had the last big crash. Interest rates short-term rates were rising at the time, but long-term rates were around 10 percent. Today they are under six percent, So you still have a nice underpinning for the economy, I think and I hope, but this is certainly going to take a big whack out of the IPO market, and is going to take a big whack out of all of that spending that companies were piling up based on their IPO winnings.

ALLEN: So, looking ahead, you think Alan Greenspan and company could be a bit more aggressive in trying to cool down the economy?

GLASGALL: Well, I think that they have to be unless there is really wholesale, widespread carnage. What we've done today and in the last big Nasdaq sell-off is we have kind of taken off this year's froth, but last year Nasdaq was up 85 percent. It's never done that. That's an extraordinary gain, an extraordinary amount of asset inflation for one year. It may be the Fed wants to let things run a little more before they really get worried.

ALLEN: Bill, thank you so much, Bill Glasgall for joining us.

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