Investors agonizing over a faltering economy sent the stock
market plunging all over again today after a stream of
disheartening data convinced Wall Street that a recession, if
not already here, is inevitable.
The market's despair propelled the Dow Jones industrials down
733 points to their second-largest point loss ever, and the
major indexes all lost at least 7 percent.
The slide meant that the Dow, which fell 76 points yesterday,
has given back all but 127 points of its record 936-point
gain of Tuesday, which came on optimism about the banking
system in response to the government's plans to invest up to
$250 billion in financial institutions.
Today's sell-off began after the government's report that
retail sales plunged in September by 1.2 percent - almost
double the 0.7 percent analysts expected - made it clear that
consumers are reluctant to spend amid a shaky economy and a
punishing stock market.
The Commerce Department report was sobering because consumer
spending accounts for more than two-thirds of U.S. economic
activity. The reading came as Wall Street was refocusing its
attention on the faltering economy following stepped up
government efforts to revive the stagnant lending markets.
Then, during the afternoon, the release of the Beige Book,
the assessment of business conditions from the Federal
Reserve, added to investors' angst.
The report found that the economy continued to slow in the
early fall as financial and credit market problems took a
turn for the worse. The central bank's report supported the
market's belief that difficulties in obtaining loans have
choked growth in wide swaths of the economy.
"Even though the banking sector may be returning to normal,
the economy still isn't. The economy continues to face a host
of other problems," said Doug Roberts, chief investment
strategist at ChannelCapitalResearch.com. "We're in for a
Fed Chairman Ben Bernanke offered a similar opinion, warning
that patching up the credit markets won't provide an
instantaneous jolt to the economy.
"Stabilization of the financial markets is a critical first
step, but even if they stabilize as we hope they will,
broader economic recovery will not happen right away," he
told the Economic Club of New York.
Analysts have warned that the market will see continued
volatility as it tries to recover from the devastating losses
of the last month, including the nearly 2400-point plunge in
the Dow over the eight sessions that ended Saturday.
Such turbulence is typical after a huge decline, but the
market's anxiety about the economy was also expected to cause
gyrations in the weeks and months ahead.
Selling accelerated in the last hour of trading, a common
occurrence during the eight days of heavy declines. One
reason for the heavy selling: Mutual funds need to unload
stock to pay investors who are bailing out of the market.
Investors apparently have come to believe that Monday's big
rebound over the banking sector was overdone given the
problems elsewhere in the economy.
"It really doesn't come as a shock after Monday's gains were,
I think, a little bit excessive," said Charles Norton,
principal and portfolio manager at GNICapital, referring to
the market's pullback.
He contends that the government has taken so many steps to
help the financial system that investors must now wait for
some of the actions to help steady the economy.
"It seems like all the tools in the tool chest have mostly
been used now and now it's back to reality," he said. "We're
still faced with the fact that the economy is slowing and
earnings aren't very good."
Mark Coffelt, portfolio manager at Empiric Funds, said moves
by European and U.S. government officials to begin investing
directly in banks are easing worries about credit.
But the steep pullback in stocks that began last month after
the credit markets lurched to a near standstill has now
created worries that consumers will spend less after seeing
the value of their retirement accounts and other investments
"Markets abhor uncertainty and so we got a lot of that
resolved this weekend and we got the reward Monday but now
people are saying 'OK, now what is the economy going to do?'"
"We're definitely going to get a slowdown from the terror of
going through that," Coffelt said.
The Dow ended down 733.08, or 7.87 percent, at 8,577.91.
September 29, the Dow had its largest point drop 777.68.
Wednesday's percentage drop was the biggest since the 8.04
percent of October 26, 1987, which followed Black Monday, the
October 19 crash that sent the blue chips down 22.6 percent
in a single session.
The Dow's massive decline Wednesday marks its 20th
triple-digit move in 23 sessions.
Broader stock indicators also skidded. The Standard &
Poor's 500 index fell 90.17, or 9.03 percent, to 907.84, and
the Nasdaq composite index fell 150.68, or 8.47 percent, to
It was the lowest close for the Nasdaq since June 30, 2003,
when the index finished at 1,622.80. The Dow and the S&P
500 are also at mid-2003 levels.
The Dow is down 39.4 percent from its October 9, 2007 closing
high of 14,164.53. The S&P is down 42 percent from its
high at the same time of 1565.15. The Nasdaq's record high
was 5048.62, during the dot-com boom that swelled the index
to levels it has not come close to regaining after the
high-tech bubble burst.
U.S. stock market paper losses came to $1.1 trillion today,
according to the Dow Jones Wilshire 5000 Composite Index,
which represents nearly all stocks traded in America.
Today's losses came as investors were hoping the market would
recover from last week's terrible run, which erased about
$2.4 trillion in shareholder wealth and brought the Dow to
its lowest level since April 2003.
The tumble occurred amid a seize-up in lending stemming from
a lack of trust among institutions in response to the
bankruptcy of investment bank Lehman Brothers Holdings Inc.
and the failure of Washington Mutual Inc., which had been the
nation's largest thrift.
The credit markets have been showing tentative signs of
recovery, though they remain strained. The three-month
Treasury bill on Wednesday was yielding 0.20 percent, down
from 0.30 percent on Tuesday. Overall, yields remain low,
showing that demand is so high that investors are willing to
earn meager returns as long as their principal is preserved.