The Dow plummeted another 500 points to five-year lows on Tuesday as Wall Street shrugged off another emergency effort by the Federal Reserve to cure ailing credit markets.
The selloff capped the Dow's worst five-day point drop in history and came despite the Fed unveiling another plan aimed at unfreezing credit and giving a strong signal that the door may be open to more interest rate cuts.
Today's Market
The Dow Jones Industrial Average fell 508.39 points, or 5.11%, to 9447.11. The broader S&P 500 Index lost 60.66 points, or 5.74%, to 996.23 while the Nasdaq Composite dropped 108.08 points, or 5.80%. to 1754.88. The consumer-focused FOX 50 slid 44.26 points, or 5.57%, to 750.54.
The latest wave of selling left the blue chips well below the pivotal 10,000 threshold after closing in four digits for the first time in almost four years on Monday. In fact, Tuesday's losses left the benchmark index in territory unseen since October 2003 and landed the broad S&P 500 below the 1,000 level.
According to Reuters data, the Dow's five-day freefall of more than 1400 points is the worst such losing streak on a point basis ever. The S&P 500 plummeted 14.6% over the past five trading sessions -- the steepest declines since the 1987 crash.
“There continues to be a vote of no confidence in the stock market. The fear of the unknown is much more powerful than the desire to buy stocks," said Michael James, senior equity trader at WedbushMorgan Securities.
Hopes that central bankers around the world would huddle together to cut interest rates en masse went unanswered, weighing heavily on the markets.
“This market is currently obsessed with this coordinated global interest rate cut," said Ryan Detrick, equities analyst at Schaeffer's Investment Research. “It's simply a cascade of selling. The market didn’t get what it wanted. It's pretty fickle.”
Nowhere were the ongoing financial fears more evident than in shares of Bank of America (BAC), which lost one-quarter of its market value on Tuesday and led the Dow's percentage losers. The financial giant plummeted on its worse-than-expected quarterly results and its plans to halve its dividend and raise $10 billion in capital.
Financial giants JPMorganChase (JPM) and Citigroup (C) didn't fare much better, diving more than 10% apiece, and names like MorganStanley (MS), Deutsche Bank (DB) and Merrill Lynch (MER) saw double-digit percentage declines.
ExxonMobil (XOM) was the only blue-chip stock that didn't decline by at least 1% on Tuesday.
Tech stocks weren't immune from the selling either, as the Nasdaq Composite suffered even steeper losses of almost 6%. Blue-chip tech companies like Apple (AAPL), Yahoo!(YHOO) and Google (GOOG) tanked.
Fed Moves Fail to Stop the Fears
Tuesday's selloff came even as the Federal Reserve sought to unfreeze the credit markets by plunging headfirst into the short-term debt markets.
Minutes before Tuesday's opening bell, the Fed announced it will buy commercial paper, which businesses rely on for short-term lending. The commercial paper market has all but frozen up, shrinking by $94.9 billion to $1.61 trillion last week.
A speech by Federal Chairman Ben Bernanke only added to the market's woes on Tuesday. Stocks hit session lows after Bernanke outlined the government's recent intervention into the financial markets and acknowledged that economic conditions have deteriorated.
"The outlook for economic growth has worsened," Bernanke said. "In light of these developments, the Federal Reserve will need to consider whether the current stance of policy remains appropriate," he said.
Wall Street appeared to be hoping for a greater hint that a rate cut is on the way.
“They are getting down to their last few bullets. We are thinking they better use them soon because everything they have done hasn't worked so far. We are definitely in a financial meltdown," said Detrick.
Credit Fears Spread to Europe
Meanwhile, Wall Street is closely monitoring the worsening credit situation in Europe.
U.K. banking giants tanked Tuesday as British authorities sought to prevent the financial turmoil in Europe from spreading.Royal Bank of Scotland (RBS) saw its shares quickly lose more than one-third of their value, while Barclays (BCS), which recently purchased some of Lehman Brothers' assets, dove by 20%.
According to The Wall Street Journal, the U.K. government is poised to announce a rescue package for its banking system that would include a proposal to inject capital into bank. The plan being discussed will reportedly include a standby facility for banks.
Meanwhile, crude oil prices rebounded modestly onTuesday, closing $1.95 higher at $89.76 a barrel. Prior to Tuesday, crude had plunged 13% over a four-day stretch as the commodity came under heavy pressure from the strengthening greenback and fears a U.S. recession will significantly lower demand.
Earnings season began Tuesday evening with aluminum mining giant Alcoa (AA), which reported lower-than-expected profits.
Corporate Movers
Wells Fargo (WFC) is likely to win 75% to 80% of Wachovia’s (WB) deposits, Reuters reported. Citigroup (C) would likely take Wachovia’s Northeast branches and deposits while Wells Fargo would acquire most of Wachovia’s assets like option-pay mortgages, the news agency reported.
Morgan Stanley (MS) saw its shares plummet as much as 30% on Tuesday, prompting the banking giant to say a $9 billion investment from Mitsubishi UFJ Financial Group (MTU) is on track to close "imminently."
Bank of America(BAC) on Monday released weaker-than-expected quarterly results two weeks early. To counter a 68% dive in third-quarter profit, BofA said it will halve its dividend and raise about $10 billion through a common stock offering.
Advanced Micro Devices (AMD) closed sharply higher after the chip maker unveiled plans to significantly cut costs by spinning off its factories into a new joint venture. At the same time, Abu Dhabi’s investment arm will up its current stake in the chip maker to 19.3% from 8.1%.
General Motors (GM) is halting production at nearly all of its European sites amid declining sales there, Dow Jones Newswires reported. The production stoppages impact the auto maker’s Opel brand.
Data Dump
The markets had little reaction to the release of the Sept. 16 Federal OpenMarket Committee minutes. The report showed FOMC members saw risks to both economic growth and inflation that could require a policy response.
Reflecting the anxiety in the credit markets, the government said on Tuesday that consumer borrowing unexpectedly fell by 3.7% in August -- the first monthly decline in more than a decade.
World Markets
European stock markets mostly posted modest rebounds from Monday's epic selloffs.
London's FTSE 100 closed up 16.03 points, or 0.35%, to 4605.22. France's CAC 40 Index recovered from its record losses by rising 20.24 points, or 0.55%, to 3732.22.
Japan's Nikkei 225 ended with steep losses, closing 3.03% lower at 10155.90.
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