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Dow plunges 733 on new disheartening economic data & Stocks plunge anew as data points to recession & US confronts possibility of long, deep recession
Dow plunges 733 on new disheartening economic data
By JEANNINE AVERSA, AP Economics Writer
15 minutes ago
The economy lurched deeper into the doldrums Wednesday and took the stock market down with it, sending the Dow Jones industrials to a staggering 733-point loss and erasing any hopes that the convulsions that have shaken Wall Street for a month were over.
The daylong sell-off came as retailers reported the biggest drop in sales in three years and as a Federal Reserve snapshot showed Americans are spending less and manufacturing is slowing around the country.
Piling up losses in a rough final hour of trading, the Dow ended the day down nearly 8 percent — its steepest drop since one week after Black Monday in 1987. The Dow has wiped out all but about 127 points of its record-shattering 936-point gain on Monday of this week.
Earlier this week, after governments around the world announced plans to use trillions of dollars to prop up banks, including a U.S. plan to buy about $250 billion in bank stocks, the market had appeared to be turning around — or at least calming down.
Instead, relentless selling gave the Dow its 20th triple-digit swing in the past 23 trading sessions, an unprecedented run of volatility. The Dow has finished higher on only one day this month. The loss of 733 points is the second-worst ever for the average, topped only by a 778-point decline Sept. 29.
The plunge in stocks put the nation's economic anxiety front-and-center as the two major presidential candidates, Sens. Barack Obama and John McCain, prepared for their final debate Wednesday night in Hempstead, N.Y.
In the meantime, the man they each hope to succeed met with his Cabinet. President Bush predicted "in the long run that this economy will come back."
Bush plans to speak on the financial crisis early Friday — before the markets open — at the U.S. Chamber of Commerce headquarters across from the White House. Officials said the speech wasn't intended to put forward new policy actions, but president would instead give a more detailed explanation of what the government is doing — and why — to combat the crisis.
Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke expressed confidence that the government's radical efforts to stabilize the financial system and induce banks to lend again will eventually help the economy.
But Bernanke warned that even if the financial markets level off, the nation will not snap back to economic health quickly.
"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," Bernanke told the Economic Club of New York.
Paulson, making the rounds of network TV morning shows, struck a similar note. "This will take time. There will be challenges," he said on ABC's "Good Morning America."
Some analysts believe the economy jolted into reverse in the recently ended third quarter, while others predict it will shrink later this year or early next. The classic definition of a recession is back-to-back quarters of shrinking economic activity.
Two gloomy economic reports showed that the debate at this point is merely semantic.
The Fed's snapshot of business conditions around the nation, known as the Beige Book, showed economic activity weakening across all of the Fed's 12 regional districts. Consumer spending — which accounts for more than two-thirds of economic activity — slumped in most Fed regions. Manufacturing also slowed in most areas.
As shoppers cut back, retail sales dropped sharply in September. The 1.2 percent decline was the biggest in three years. Retail sales have fallen for three months in a row, the first time that's happened since the government began keeping comparable records in 1992.
Analysts had expected only a 0.7 percent decline. And as Americans watch their nest eggs shrink before their eyes on days like Wednesday on Wall Street, there's little reason to expect they will shop with gusto anytime soon.
Leaders of the world's top economic powers, the Group of Eight, said they would meet "in the near future" for a global summit to tackle the financial crisis. The group comprises the United States, Japan, Germany, France, Britain, Italy, Canada and Russia.
British Prime Minister Gordon Brown said the meeting could be held as soon as next month. He said the discussions should include not only the world's richest nations but also major emerging economies such as China and India.
"I believe there is scope for agreement in the next few days that we will have an international meeting to take common action ... for very large and very radical changes," Brown told reporters before a meeting with other European Union leaders for talks in Brussels on the financial crisis.
German Chancellor Angela Merkel and French President Nicolas Sarkozy also called for a G-8 meeting.
Merkel said reform was needed so that "something like this can never happen again," while Sarkozy said the meeting should be held in New York, "where everything started."
The current financial crisis began more than a year ago in the United States when lax lending standards on certain home mortgages came home to roost. Foreclosures skyrocketed, mortgage securities soured and financial companies racked up huge losses.
Credit remained strained Wednesday, and investors' appetite for super-safe investments stayed high. The three-month Treasury bill's yield slipped. Low yields show that investors are willing to earn meager returns as long as their investment is preserved.
Key lending rates between banks in the U.S. and Europe only inched down after major central banks offered the banking sector unlimited amounts of short-term loans in dollars. The move was meant to keep credit markets flowing while lenders regain confidence.
There was a dose of good news Wednesday: Oil prices dipped below $75 a barrel for the first time in nearly 14 months, suggesting gas prices will keep falling. Oil prices have now plunged almost 50 percent since peaking at $147.27 in mid July.
___
Associated Press writers Pan Pylas in London, Madlen Read and Patrick Rizzo in New York and Deb Riechmann, Christopher S. Rugaber and Martin Crutsinger in Washington contributed to this report.
Stocks plunge anew as data points to recession
By TIM PARADIS, AP Business Writer
Wed Oct 15, 6:31 PM ET
NEW YORK - Investors agonizing over a faltering economy sent the stock market plunging all over again Wednesday 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 on Tuesday, has given back all but 127 points of its record 936-point gain of Monday, which came on optimism about the banking system in response to the government's plans to invest up to $250 billion in financial institutions.
Wednesday'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 in a speech Wednesday 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 2,400-point plunge in the Dow over the eight sessions that ended Friday. 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."
Doubts about the economy were already surfacing in Tuesday's session, when investors halted an early rally and began collecting profits from stocks' big Monday advance. Wednesday's data confirmed the market's fears that the economy is likely to remain weak for some time, and that corporate profits are likely to suffer.
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. On Monday, Sept. 29, the Dow had its largest point drop 777.68. Wednesday's percentage drop was the biggest since the 8.04 percent of Oct. 26, 1987, which followed Black Monday, the Oct. 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 Oct. 9, 2007 closing high of 14,164.53. The S&P is down 42 percent from its high at the same time of 1,565.15. The Nasdaq's record high was 5,048.62, 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 Wednesday, according to the Dow Jones Wilshire 5000 Composite Index, which represents nearly all stocks traded in America.
Wednesday'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.
The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.98 percent from 4.03 percent late Tuesday.
About 350 stocks advanced at the New York Stock Exchange, while about 2,800 declined. Consolidated volume came to 6.4 billion shares, down from 7.97 billion traded Tuesday.
The Russell 2000 index of smaller companies fell 52.54, or 9.47 percent, to 502.11.
Light, sweet crude fell $4.09 to settle at $74.54 per barrel on the New York Mercantile Exchange.
In Asian trading, Hong Kong's Hang Seng Index lost nearly 5 percent after rising more than 13 percent the previous two days. Markets in Australia, South Korea, China, India and Singapore also sank. Japan's Nikkei 225 index, however, ended up 1.1 percent after soaring 14 percent in the previous session.
In Europe, Britain's FTSE 100 fell 7.08 percent, Germany's DAX index fell 6.49 percent, and France's CAC-40 fell 6.82 percent.
___
On the Net:
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
US confronts possibility of long, deep recession
By ADAM GELLER, AP National Writer
Wed Oct 15, 6:09 PM ET
NEW YORK - The U.S. has not endured a deep and prolonged recession in more than a quarter century — enough time for many Americans to forget what one feels like.
But unlike the last two relatively short recessions, this one could be much longer and more severe, potentially bringing with it anxiety and job losses not seen in many years.
"In thinking about recessions, people will naturally think back to the last couple" in the early 1990s and in 2001, said Paul Ashworth, senior U.S. economist at Capital Economics in Toronto. "What they should be looking back at is further."
That requires dredging up memories of the economic slides in the 1970s, when an Arab oil embargo starved the nation of energy, and the early 1980s, when unemployment and inflation soared.
The last recession — coinciding with the collapse of the tech stock bubble and the terrorist attacks of 2001 — lasted just eight months. It was known more for the slow "jobless" recovery that followed than for the depth of the downturn.
Many economists agree that the nation won't be so fortunate this time.
"I don't think we can escape damage to the real economy," former Federal Reserve Chairman Paul Volcker said this week in Singapore. "I think we almost inevitably face a considerable recession."
The Fed's current chairman, Ben Bernanke, delivered a more measured, but similarly grave assessment to economists, saying the recent financial turmoil "may well lengthen the period of weak economic performance and further increase the risks to growth."
The signs of stress are starting to show: The U.S. has lost 760,000 jobs since late last year, and retail sales in September plunged 1.2 percent, the largest drop in three years.
Every recession is driven by its own dynamic and psychology. The current slump started with the collapse in the housing market and got worse with sharp restrictions on credit that pressured consumer spending and businesses.
That is a different environment from 1973, when an oil crisis was the culprit, squeezing U.S. businesses and consumers. In the early 1980s, raging inflation and high interest rates took their toll.
Both periods saw millions of Americans out of work. In 1975, the unemployment rate peaked at 9 percent. In 1982, it jumped to 10.8 percent.
Most economists forecast a sharp increase in the number of people who lose their jobs. But they do not see it leading to unemployment on the scale of either the 1970s or 1980s.
The jobless rate is currently at 6.1 percent, and many economists expect it to rise to about 7 percent early next year — a level the country has not seen since 1993. Some analysts believe the unemployment rate could eventually climb close to 8 percent, which hasn't happened since 1984.
But this recession could begin to feel like those of the past not just because of lost jobs, but because of fear about the future.
In the 1980s, as the nation struggled with inflation and a transition from a manufacturing economy to one based on services, Americans had "a huge amount of uncertainty and anxiety that lingered on for a long period of time," said Bart van Ark, chief economist for The Conference Board.
"That element I find comparable to what we're seeing today, but some of the underlying dynamics are very, very different."
In 1973, the U.S. economy had been growing for three years and unemployment had dropped to well below 5 percent.
Then, on Oct. 6, Egyptian and Syrian forces launched surprise attacks on Israeli-held territory while Jews were observing Yom Kippur. Arab members of OPEC soon cut off shipments of oil to the U.S. and other countries that supported Israel.
Oil prices rose sharply and forced rationing of tight supplies. Drivers lined up at filling stations on odd or even days depending on the number on their license plates. Some stations ran out of gas.
A recession is typically defined as a period in which the economy shrinks for two quarters in a row. In the 2001 recession, the quarters weren't even consecutive.
But in the 1970s, the recession stretched on for a year and a half. Nearly 2.2 million people lost their jobs. By the end of 1974, the Dow Jones industrial average had lost more than 40 percent of its value. At the same time, the nation was focused on the Watergate scandal and the vacuum left by President Nixon's resignation in August 1974.
The economy began to recover in spring of the next year. But inflation, which had eased as the oil embargo was lifted, spiked again. By 1980, prices were rising at an annual rate of 13.5 percent.
Anxious about a hostage crisis in Iran and the Carter's administration inability to tame inflation, Americans elected Ronald Reagan president. But it wasn't at all clear how his plan to increase defense spending would cure the economy's ills.
Volcker, appointed by Carter to lead the Fed in 1979, took on inflation by sharply raising interest rates. It worked, but made life even more difficult for consumers at a time when the nation was doubtful about its economic future.
"That was the feeling at that time: hopelessness, in terms of how do we get out of this situation," said Anthony Campagna, author of "The Economy in the Reagan Years."
The next recession did not come until 1990, as preparations for the Gulf War drove up the price of oil. But the 1.6 million jobs lost was much less severe than in the previous downturn, and this one lasted for just eight months.
When it recovered, the economy staged its longest expansion on record — 10 years of growth. The next recession, in early 2001, was similarly short-lived. The number of people out of work rose sharply, but compared with some past recessions, unemployment rate was relatively mild.
The fact that the last two recessions were so short, the damage relatively limited and the preceding good times so long has helped many people forget the pain of a more severe economic slump.
"We've become a little spoiled, actually," said Todd Knoop, a professor at Iowa's Cornell College and author of "Modern Financial Macroeconomics: Panics, Crashes and Crises."
That could make this recession feel particularly intense.
Said Jay Bryson, global economist at Wachovia Corp.: "I think no matter how you measure it, this coming recession will be worse than the last one."
(This version CORRECTS economist's name to van Ark, not Van Ark.)
By JEANNINE AVERSA, AP Economics Writer
15 minutes ago
The economy lurched deeper into the doldrums Wednesday and took the stock market down with it, sending the Dow Jones industrials to a staggering 733-point loss and erasing any hopes that the convulsions that have shaken Wall Street for a month were over.
The daylong sell-off came as retailers reported the biggest drop in sales in three years and as a Federal Reserve snapshot showed Americans are spending less and manufacturing is slowing around the country.
Piling up losses in a rough final hour of trading, the Dow ended the day down nearly 8 percent — its steepest drop since one week after Black Monday in 1987. The Dow has wiped out all but about 127 points of its record-shattering 936-point gain on Monday of this week.
Earlier this week, after governments around the world announced plans to use trillions of dollars to prop up banks, including a U.S. plan to buy about $250 billion in bank stocks, the market had appeared to be turning around — or at least calming down.
Instead, relentless selling gave the Dow its 20th triple-digit swing in the past 23 trading sessions, an unprecedented run of volatility. The Dow has finished higher on only one day this month. The loss of 733 points is the second-worst ever for the average, topped only by a 778-point decline Sept. 29.
The plunge in stocks put the nation's economic anxiety front-and-center as the two major presidential candidates, Sens. Barack Obama and John McCain, prepared for their final debate Wednesday night in Hempstead, N.Y.
In the meantime, the man they each hope to succeed met with his Cabinet. President Bush predicted "in the long run that this economy will come back."
Bush plans to speak on the financial crisis early Friday — before the markets open — at the U.S. Chamber of Commerce headquarters across from the White House. Officials said the speech wasn't intended to put forward new policy actions, but president would instead give a more detailed explanation of what the government is doing — and why — to combat the crisis.
Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke expressed confidence that the government's radical efforts to stabilize the financial system and induce banks to lend again will eventually help the economy.
But Bernanke warned that even if the financial markets level off, the nation will not snap back to economic health quickly.
"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," Bernanke told the Economic Club of New York.
Paulson, making the rounds of network TV morning shows, struck a similar note. "This will take time. There will be challenges," he said on ABC's "Good Morning America."
Some analysts believe the economy jolted into reverse in the recently ended third quarter, while others predict it will shrink later this year or early next. The classic definition of a recession is back-to-back quarters of shrinking economic activity.
Two gloomy economic reports showed that the debate at this point is merely semantic.
The Fed's snapshot of business conditions around the nation, known as the Beige Book, showed economic activity weakening across all of the Fed's 12 regional districts. Consumer spending — which accounts for more than two-thirds of economic activity — slumped in most Fed regions. Manufacturing also slowed in most areas.
As shoppers cut back, retail sales dropped sharply in September. The 1.2 percent decline was the biggest in three years. Retail sales have fallen for three months in a row, the first time that's happened since the government began keeping comparable records in 1992.
Analysts had expected only a 0.7 percent decline. And as Americans watch their nest eggs shrink before their eyes on days like Wednesday on Wall Street, there's little reason to expect they will shop with gusto anytime soon.
Leaders of the world's top economic powers, the Group of Eight, said they would meet "in the near future" for a global summit to tackle the financial crisis. The group comprises the United States, Japan, Germany, France, Britain, Italy, Canada and Russia.
British Prime Minister Gordon Brown said the meeting could be held as soon as next month. He said the discussions should include not only the world's richest nations but also major emerging economies such as China and India.
"I believe there is scope for agreement in the next few days that we will have an international meeting to take common action ... for very large and very radical changes," Brown told reporters before a meeting with other European Union leaders for talks in Brussels on the financial crisis.
German Chancellor Angela Merkel and French President Nicolas Sarkozy also called for a G-8 meeting.
Merkel said reform was needed so that "something like this can never happen again," while Sarkozy said the meeting should be held in New York, "where everything started."
The current financial crisis began more than a year ago in the United States when lax lending standards on certain home mortgages came home to roost. Foreclosures skyrocketed, mortgage securities soured and financial companies racked up huge losses.
Credit remained strained Wednesday, and investors' appetite for super-safe investments stayed high. The three-month Treasury bill's yield slipped. Low yields show that investors are willing to earn meager returns as long as their investment is preserved.
Key lending rates between banks in the U.S. and Europe only inched down after major central banks offered the banking sector unlimited amounts of short-term loans in dollars. The move was meant to keep credit markets flowing while lenders regain confidence.
There was a dose of good news Wednesday: Oil prices dipped below $75 a barrel for the first time in nearly 14 months, suggesting gas prices will keep falling. Oil prices have now plunged almost 50 percent since peaking at $147.27 in mid July.
___
Associated Press writers Pan Pylas in London, Madlen Read and Patrick Rizzo in New York and Deb Riechmann, Christopher S. Rugaber and Martin Crutsinger in Washington contributed to this report.
Stocks plunge anew as data points to recession
By TIM PARADIS, AP Business Writer
Wed Oct 15, 6:31 PM ET
NEW YORK - Investors agonizing over a faltering economy sent the stock market plunging all over again Wednesday 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 on Tuesday, has given back all but 127 points of its record 936-point gain of Monday, which came on optimism about the banking system in response to the government's plans to invest up to $250 billion in financial institutions.
Wednesday'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 in a speech Wednesday 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 2,400-point plunge in the Dow over the eight sessions that ended Friday. 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."
Doubts about the economy were already surfacing in Tuesday's session, when investors halted an early rally and began collecting profits from stocks' big Monday advance. Wednesday's data confirmed the market's fears that the economy is likely to remain weak for some time, and that corporate profits are likely to suffer.
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. On Monday, Sept. 29, the Dow had its largest point drop 777.68. Wednesday's percentage drop was the biggest since the 8.04 percent of Oct. 26, 1987, which followed Black Monday, the Oct. 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 Oct. 9, 2007 closing high of 14,164.53. The S&P is down 42 percent from its high at the same time of 1,565.15. The Nasdaq's record high was 5,048.62, 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 Wednesday, according to the Dow Jones Wilshire 5000 Composite Index, which represents nearly all stocks traded in America.
Wednesday'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.
The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.98 percent from 4.03 percent late Tuesday.
About 350 stocks advanced at the New York Stock Exchange, while about 2,800 declined. Consolidated volume came to 6.4 billion shares, down from 7.97 billion traded Tuesday.
The Russell 2000 index of smaller companies fell 52.54, or 9.47 percent, to 502.11.
Light, sweet crude fell $4.09 to settle at $74.54 per barrel on the New York Mercantile Exchange.
In Asian trading, Hong Kong's Hang Seng Index lost nearly 5 percent after rising more than 13 percent the previous two days. Markets in Australia, South Korea, China, India and Singapore also sank. Japan's Nikkei 225 index, however, ended up 1.1 percent after soaring 14 percent in the previous session.
In Europe, Britain's FTSE 100 fell 7.08 percent, Germany's DAX index fell 6.49 percent, and France's CAC-40 fell 6.82 percent.
___
On the Net:
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
US confronts possibility of long, deep recession
By ADAM GELLER, AP National Writer
Wed Oct 15, 6:09 PM ET
NEW YORK - The U.S. has not endured a deep and prolonged recession in more than a quarter century — enough time for many Americans to forget what one feels like.
But unlike the last two relatively short recessions, this one could be much longer and more severe, potentially bringing with it anxiety and job losses not seen in many years.
"In thinking about recessions, people will naturally think back to the last couple" in the early 1990s and in 2001, said Paul Ashworth, senior U.S. economist at Capital Economics in Toronto. "What they should be looking back at is further."
That requires dredging up memories of the economic slides in the 1970s, when an Arab oil embargo starved the nation of energy, and the early 1980s, when unemployment and inflation soared.
The last recession — coinciding with the collapse of the tech stock bubble and the terrorist attacks of 2001 — lasted just eight months. It was known more for the slow "jobless" recovery that followed than for the depth of the downturn.
Many economists agree that the nation won't be so fortunate this time.
"I don't think we can escape damage to the real economy," former Federal Reserve Chairman Paul Volcker said this week in Singapore. "I think we almost inevitably face a considerable recession."
The Fed's current chairman, Ben Bernanke, delivered a more measured, but similarly grave assessment to economists, saying the recent financial turmoil "may well lengthen the period of weak economic performance and further increase the risks to growth."
The signs of stress are starting to show: The U.S. has lost 760,000 jobs since late last year, and retail sales in September plunged 1.2 percent, the largest drop in three years.
Every recession is driven by its own dynamic and psychology. The current slump started with the collapse in the housing market and got worse with sharp restrictions on credit that pressured consumer spending and businesses.
That is a different environment from 1973, when an oil crisis was the culprit, squeezing U.S. businesses and consumers. In the early 1980s, raging inflation and high interest rates took their toll.
Both periods saw millions of Americans out of work. In 1975, the unemployment rate peaked at 9 percent. In 1982, it jumped to 10.8 percent.
Most economists forecast a sharp increase in the number of people who lose their jobs. But they do not see it leading to unemployment on the scale of either the 1970s or 1980s.
The jobless rate is currently at 6.1 percent, and many economists expect it to rise to about 7 percent early next year — a level the country has not seen since 1993. Some analysts believe the unemployment rate could eventually climb close to 8 percent, which hasn't happened since 1984.
But this recession could begin to feel like those of the past not just because of lost jobs, but because of fear about the future.
In the 1980s, as the nation struggled with inflation and a transition from a manufacturing economy to one based on services, Americans had "a huge amount of uncertainty and anxiety that lingered on for a long period of time," said Bart van Ark, chief economist for The Conference Board.
"That element I find comparable to what we're seeing today, but some of the underlying dynamics are very, very different."
In 1973, the U.S. economy had been growing for three years and unemployment had dropped to well below 5 percent.
Then, on Oct. 6, Egyptian and Syrian forces launched surprise attacks on Israeli-held territory while Jews were observing Yom Kippur. Arab members of OPEC soon cut off shipments of oil to the U.S. and other countries that supported Israel.
Oil prices rose sharply and forced rationing of tight supplies. Drivers lined up at filling stations on odd or even days depending on the number on their license plates. Some stations ran out of gas.
A recession is typically defined as a period in which the economy shrinks for two quarters in a row. In the 2001 recession, the quarters weren't even consecutive.
But in the 1970s, the recession stretched on for a year and a half. Nearly 2.2 million people lost their jobs. By the end of 1974, the Dow Jones industrial average had lost more than 40 percent of its value. At the same time, the nation was focused on the Watergate scandal and the vacuum left by President Nixon's resignation in August 1974.
The economy began to recover in spring of the next year. But inflation, which had eased as the oil embargo was lifted, spiked again. By 1980, prices were rising at an annual rate of 13.5 percent.
Anxious about a hostage crisis in Iran and the Carter's administration inability to tame inflation, Americans elected Ronald Reagan president. But it wasn't at all clear how his plan to increase defense spending would cure the economy's ills.
Volcker, appointed by Carter to lead the Fed in 1979, took on inflation by sharply raising interest rates. It worked, but made life even more difficult for consumers at a time when the nation was doubtful about its economic future.
"That was the feeling at that time: hopelessness, in terms of how do we get out of this situation," said Anthony Campagna, author of "The Economy in the Reagan Years."
The next recession did not come until 1990, as preparations for the Gulf War drove up the price of oil. But the 1.6 million jobs lost was much less severe than in the previous downturn, and this one lasted for just eight months.
When it recovered, the economy staged its longest expansion on record — 10 years of growth. The next recession, in early 2001, was similarly short-lived. The number of people out of work rose sharply, but compared with some past recessions, unemployment rate was relatively mild.
The fact that the last two recessions were so short, the damage relatively limited and the preceding good times so long has helped many people forget the pain of a more severe economic slump.
"We've become a little spoiled, actually," said Todd Knoop, a professor at Iowa's Cornell College and author of "Modern Financial Macroeconomics: Panics, Crashes and Crises."
That could make this recession feel particularly intense.
Said Jay Bryson, global economist at Wachovia Corp.: "I think no matter how you measure it, this coming recession will be worse than the last one."
(This version CORRECTS economist's name to van Ark, not Van Ark.)
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