The Dow Jones industrial average plummeted more than 500 points Wednesday after a rash of negative earnings reports renewed fears that economies in the U.S. and elsewhere are headed into a deep recession.
The Dow closed down 514.45 points, or 5.7 percent, at 8519.21, rallying a bit from a furious late-session sell-off that drove the index down almost 700 points. The broader Standard & Poor’s 500 index fell 58.27 points, or 6.1 percent, to 896.78, and the tech-heavy Nasdaq composite index slid 80.93 points, or 4.8 percent, to 1615.75.
It was the Dow’s biggest loss since its 733-point decline Oct. 15, and the index is now down almost 40 percent from the all-time high of 14,164.53 it reached on Oct. 9, 2007. All 30 of the stocks in the Dow were lower on the day.
Analysts blamed the sell-off on a shift in investor focus from the global credit crisis, which continued to show signs of improvement Wednesday, to the prospects for a deep and protracted global recession. Late Tuesday, Citigroup analysts predicted that U.S. economic growth would be stalled for a year in one of the worst recessions since World War II.
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“Even if it weren’t for the credit crisis, we’d probably be looking toward a pretty tough recession anyway,” John Thornton, co-portfolio manager at Stephens Investment Management Group, told The Associated Press. “The third-quarter earnings are kind of uninspiring but third quarter hasn’t been the real concern of people. I think the concern is the depth and duration of the downturn.”
The market’s steep drop in the final hour of trading may have been exacerbated by forced selling of stocks by mutual funds, hedge funds and other institutional investors scrambling to raise cash to meet redemptions by clients, analysts said.
Al Goldman, director of market analysis at A.G. Edwards, said the dour earnings reports should come as no surprise to investors and should already be factored into stock prices. He thinks stocks may have hit a bottom earlier this month, and bulls and bears are now engaged in a tug of war over the market’s direction.