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Dow sees biggest plunge since March

The Dow has lost 552 points since Tuesday. Is it time to worry about US stocks?

By Staff writer / January 22, 2010

A TV screen on the floor of the New York Stock Exchange showed President Obama's Jan. 22 address to a town hall meeting in Ohio. His plan to limit the size and risk of banks helped push the Dow to its biggest multiday loss since March.

Richard Drew/AP

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It's as if someone shouted "Whoa!" and Wall Street listened.

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After a frothy three months where US markets gained 7 percent, traders lost more than two-thirds of those gains in a three-day plunge ending Friday. The Dow Jones Industrial Average fell 552 points over the period, its biggest percentage and point drop since March, when the bull market began. The Standard and Poor's 500 index and the NASDAQ saw similar plunges.

Although the decline was intensified by President Obama's call Thursday for new regulations limiting banks' size and risk, many traders saw this week's decline as a necessary correction. Investors' expectations for a speedy recovery had been overinflated, they said.

Indeed, many key companies reporting earnings in the past three days beat analysts' expectations. On Friday, Internet giant Google reported better-than-expected earnings but still lost more than 5 percent of its value. General Electric and McDonald's also beat expectations and saw their stocks rise slightly, but that failed to lighten the general gloom.

The blackest clouds are hovering over financial stocks, given investors' uncertainty about the ramifications of Mr. Obama's new bank plan. Goldman Sachs lost 8 percent of its value over the past two days, even though it announced quarterly profits of nearly $5 billion, handily beating expectations.

While the largest banks have seen their stocks fall sharply this week, the institutions remain in far better shape than they were a year ago. Much of the rest of corporate America is also in more stable condition.

Likewise, the US economy still seems headed in the right direction, even if the pace of recovery is slower than some horses on Wall Street would like.

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