Investors continued to run for safety Wednesday, driving the Dow Jones industrial average down another 173 points, to 16,141. But it could have been worse. In a rush to the exits earlier in the day, the Dow had plunged more than 400 points.
Since Sept. 18, the market decline has wiped away more than $1.34 trillion in the Standard & Poor’s 500, and the S&P Global Market decline has erased $3.2 trillion, according to Standard & Poor’s analyst Howard Silverblatt.
The S&P 500 has lost 7.4 percent, sending it toward a market correction, which is measured by a plunge of at least 10 percent. And the reaction of investors over the last seven days has been so intense, analysts are reluctant to forecast an end.
At the end of 2013 and the first quarter of 2014, there was “euphoria,” but “recently much pain has been felt” with many stocks down 30 percent, said Tobias Levkovich, a Citigroup analyst.
As he talks with clients, “it’s easy to detect a feeling of despair given the speed” of the plunge.
Emotions have turned quickly. Investors oblivious to negative economic data two months ago are now keenly tuned into each unsettling piece of information: Europe’s slide toward recession and deflation, the threat of an uncontrolled Ebola virus disrupting international business as well as health, risks of aggression in the Middle East, and Russia’s hand in Ukraine and Eastern Europe.
On Wednesday, a slumping manufacturing report from the New York area disappointed investors, and retail sales were particularly discouraging.
The Dow plunged more than 400 points after the retail number showed sales decreasing 0.3 percent in September after a 0.6 percent gain in August.
In recent weeks, as news from Europe, China and emerging markets has pointed to a global slowdown, analysts stayed upbeat about the U.S. remaining resilient even if American companies face challenges selling abroad.
But the retail sales number raised an unsettling question: The argument for American resilience has been that job growth is improving and the U.S. economy is moderately strengthening.
With retail sales below expectations, analysts questioned whether the fragile American consumer, who has been coping with stagnant pay for years, can be expected to buy enough to help the U.S. economy grow while the rest of the world contributes little.
The stock market has now fallen to a level that suggests investors expect 3 percent U.S. real GDP growth, said Glusken Sheff economist David Rosenberg.
But bond investors have a very different view.
By running for safety, and thereby forcing 10-year Treasury yields to a mere 2.14 percent — or 2 percent earlier Wednesday — the bond market is expecting near-recession conditions, or growth of just 1 percent.
“Both cannot be right,” said Rosenberg, who is leaning closer to the stock market interpretation of moderate growth in the U.S.
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“We are in the midst of a significant correction, but keep in mind that this is the 14th pullback since the bull market began in the spring 2009,” he said.
The stock market is in the process of turning back “frothy, excessively overvalued and overbought market conditions evident in the lead-up to and at the mid-September peaks.”
Silverblatt said, “The hope is that earnings … will prop up the market, as it has for the last two years.
“If they do, we should have support for stocks and potentially some foreign money coming in.
“If they don’t, given the recent declines and global fears, we could get that correction — and then some.”
Twitter @gailmarksjarvis