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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 tough ride."
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 drop.
"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 1,628.33.
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.