Not So Super: Dow Plunges 370 Points

Renewed Fear Of Recession Helps Drive Stocks Down

(CBS/AP)  Wall Street plunged Tuesday, driving the Dow Jones industrials down 370 points after investors saw an unexpected contraction in the service sector as evidence the economy is sinking into recession. It was the Dow's biggest percentage drop in almost a year.

The volatility that pummeled stocks in January returned with the news that the service sector shrank last month for the first time since March 2003. The report from the Institute for Supply Management wiped out the nascent optimism about the economy that had sent stocks surging higher last week.

"The report drives a nail into the coffin from investors' minds that we're in a recession," said Todd Salamone, director of trading at Schaeffer's Investment Research. "That doesn't mean stock prices in the months ahead will be lower. But when you see headline numbers like this, there tends to be a reactionary sell."

The ISM said its index of service sector activity, which accounts for about two-thirds of the economy, dropped below 50, a level that indicates contraction. The market had expected another month of growth, and the disappointment contributed to Tuesday's $500 billion loss in the Dow Jones Wilshire 5000 Composite Index, an index that measures the movement in 5,000 U.S. stocks.

Alongside the Labor Department's report last week showing the first monthly U.S. jobs decline in more than four years, the data on the service sector - which includes businesses ranging from restaurants to retailers to banks - was particularly worrisome to investors.

There's really nothing like a recession-proof job, reports CBS News correspondent Thalia Assuras, but there are options out there that provide more opportunities than others.

"Healthcare should be immune from some of the difficulties we see in a recession because we still need to go to the doctor," says John Challenger, an outplacement specialist.

That explains why Melinda Watson, a 52-year-old mother of two teenage boys, is back in school for the first time in more than 20 years - studying to be a nurse, reports Assuras.

"I'll have a career for a longtime in nursing," Watson said.

Though Wall Street hopes the Federal Reserve will keep slashing interest rates to stoke the economy, some believe the central bank, which lowered rates 1.25 percent in just over a week last month, acted too late. Rate cuts take several months to take effect, and moreover, many analysts are skeptical that rate cuts are the correct remedy for an economy saddled with bad debt in the wake of a housing market implosion.

Fitch Ratings' plans to lower the rating on more than $100 billion wrapped up in bond funds called collateralized debt obligations added to the host of concerns plaguing Wall Street. Downgrades would mean the securities - many of which are backed by mortgages - are worth even less than many investors thought. That could cause more problems for strugging banks, brokerages, and bond insurers hurt by investments in mortgages that went sour.

The Dow fell 370.03, or 2.93 percent, to 12,265.13, after falling 108 points on Monday. Tuesday's slide was the blue chip index's largest one-day percentage drop since it lost 3.3 percent on Feb. 27, 2007, and its largest point drop since it fell 387 points last Aug. 9.

The broader Standard & Poor's 500 index lost 44.18, or 3.20 percent, closing at 1,336.64, while the Nasdaq composite index tumbled 73.28, or 3.08 percent, to 2,309.57.

In Monday and Tuesday's trading, the Dow gave up most of the gains it made last week, when it jumped 536 points, or 4.39 percent, in a burst of optimism about the economy. It's not surprising that the volatile market would pull back on any bad economic news - but some analysts claim stocks should be near their bottom given how low investors sentiment is right now.

According to JPMorgan equities analyst Thomas J. Lee, the three worst readings on record in the ISM's service sector index are associated with stocks rising in the ensuing three months - on average, by 6 percent.

Even if the stock market is near its low point, though, it has a lot of ground to recover. The Dow is down more than 13 percent since its Oct. 9 record settlement of 14,164.53. Meanwhile, the S&P 500 - the measure most watched by market professionals - is down 8.9 percent for the year, the worst year-to-date performance for the index ever. The S&P 500 has fallen 14.6 percent from its Oct. 9 high.

Bond prices jumped as investors sought the safety of government-backed debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, sank to 3.56 percent from 3.64 percent late Monday.

The ISM report is particularly alarming, said Bernard Baumohl, managing director of the Economic Outlook Group LLC. Because Americans will not pare back spending significantly on necessary services like health care and transportation, January's rapid decline in service sector activity suggests that investors may have underestimated how damaged the economy is, he wrote in a research note.

On Tuesday, the biggest losers in the stock market were banks, which have already suffered huge losses in their investment portfolios last year and are now socking billions of dollars away to prepare for debt-burdened consumers to stop making payments.

Dow component Citigroup Inc. fell $2.17, or 7.4 percent, to $27.05, while JPMorgan Chase & Co., another Dow component, fell $2.33, or 5 percent, to $44.28. Washington Mutual Inc. fell $1.08, or 5.6 percent, to $18.08; Bank of America Corp. fell $1.66, or 3.8 percent, to $42.37; and Wachovia Corp. fell $1.35, or 3.8 percent, to $34.18.

"When you have the financials in intensive care such as they are, for any economy like ours, they must heal," said Quincy Krosby, chief investment strategist at the Hartford. "They drew us into this; they must lead us out."

Light, sweet crude oil declined $1.61 to $88.41 a barrel on the New York Mercantile Exchange, as traders bet that a slower economy would dampen energy demand. An extended drop in energy prices could aid businesses that are finding their supply costs are rising, but that their customers are having trouble taking on price increases.

The dollar rose against other major currencies, while gold prices fell.

Declining issues outnumbers advancers by about 4 to 1 on the New York Stock Exchange. Consolidated volume came to 4.18 billion shares, down from 4.51 billion on Monday.

The Russell 2000 index of smaller companies fell 21.88, or 3.02 percent, to 701.58.

Stocks overseas also retreated. Japan's Nikkei stock average fell 0.82 percent; Hong Kong's Hang Seng index fell 0.89 percent; Britain's FTSE 100 fell 2.63 percent; Germany's DAX index fell 3.36 percent; and France's CAC-40 fell 3.96 percent.

[shanev137]

It''s alway hilarious listening to the media try to back into and explain huge point swings on the DOW.

[underdogus]

"THEY GET OUR OIL AND GIVE US A WORTHLESS PIECE OF PAPER" Ahmadinejad told reporters....as oil prices climb,this impedes American growth, making the dollar less attractive......cheers!!

[underdogus]

LIFE in the UNITED STATES going to change so drastically that it makes the depression and the soup lines and bread lines of 1929 look like a walk in the park..It may not be a bad time to restock your cupboards and check your water supplies.....

[prairiefox1]

AFTER WATCHING THE MARKET FOR TWO MONTHS I FIND THE TREND IS TO BUY HIGH AND SELL LOW!
SO HURRY AND AND BUY YOUR STOCK TODAY BEFORE OTHERS BEAT YOU TO IT!

[underdogus]

LATIN AMERICAN NATIONS were also considering a common currency including MEXICO..cnn reported nov 07 cheers!

[quetzal0666]

Posted by brianbwb ....

If China dumps the Dollar Debt, Bet on Mexico doing the Same thing, Mexico Holds the second most u.s. debt, Followed By Saudi Arabia, theres Rumours the Saudis want to do the same thing...................


Babylon the great, get ready for the Downfall....

[stupidrules3]

Sure, lower the interest rates even more. Here, we''ll loan you some more money. Who cares if nobody can afford to pay it back? Isn''t that a big part of how we got here to begin with? Oh yeah, I forgot about the $600 check the government is going to send me. That''ll pay a lot of bills won''t it? Our government , in an effort to look like they are doing something, is making a big mistake. And the new budget that has been sent to congress only has a $400 billion deficit. Nothing to worry about there either. If they want to get the economy going, they need to tell everyone that the Bush tax cuts are over at the end of the year. Then the big corporations will start spending money on capital investments in order to take advantage of the tax benefits immediately.

[brianbwb-2009]

America will not survive the next depression, which will come when you start hearing of the Chinese dumping Bush''s "war" debt on the open market, to cut their losses from the falling dollar, which will hasten the drop in value.

Soon afterwards you will hear rumblings from OPEC about protecting the value of their oil, by switching to the Euro.

At that point, you can begin counting down the days on your fingers, as the dollar, propped up only by OPEC using it to pay for their oil, loses the last of its value, and becomes confetti.

[brianbwb-2009]

Posted by william20076

Take it somewhere else, you and your friends will be reported, this is not "cut, paste, and then spam porn sites" page.

Reported, like all the others.

[mediapreachr]

Everyone is cashing out...The market is headed down and nobody can stop it.Watch for the big players to scramble then we''re sure the recession is here already.

[walt1944-2009]

THE GREAT DEPRESSION IS COMING!!!

THE GREAT RECESSION IS HERE (no matter what the Great Emperor and the neocon Fascist Republicans say!)!!!!

Of course, neither the Great Emperor nor his wealthy millionare and billionare friends could care less about what happens to the US(SA) which is why he submitted a budget which was loaded with "funny numbers" and was a joke about "fiscal Responsibility"!

The Great Emperor''s budget will undoubtedly hasten the advent of the Great Depression in the US(SA) for which he will promptly blame the evil Whimpo-crats in Congress for not listening to his "brilliant advice"!

SIG HEIL, BUSH!!!!

[joyous88]

welcome to the republican economy (recession, depression)

thank the evangelical filth for this president

[the74blaster]

And most Republicans still deny that our economy is in the sewer.

Posted by exCoachKen,

If you talk to their base everything is fine. They are raking in the huge profits while outsourcing the decent jobs to the far east and laying off the middle class American workers.

Does anyone know of a CEO who actually took a pay cut and passed the savings they realized by outsourcing American jobs to the customer?

[mcv57]

And most Republicans still deny that our economy is in the sewer.

Posted by exCoachKen

It stands to reason. Self-denial is a primative deep self-defense mechanism in the subconscience. Freudism called this primative subconscience the IT. The IT is the dark abyss (last level) of the superconscience of a human - responsible for survive and automatic bodily functions (instinct and survive).

Many criminals who face the death sentence, submit to the IT to detort factual events. Abused children store experience of violence and rape in the IT. Sometimes the horrids of this life leaks to the conscience mind, the subject begin to act strange - split personalities, etc.

[excoachken]

And most Republicans still deny that our economy is in the sewer.

Sounds like everyone is right on track. Corporate America continues to sell out the American worker in search of short-term greedy profits to the detriment of our entire nation and no one is lifting a finger to stop it. Seems like Washington is completely bought out.

[trillion1]

Someday Wall Street and goverment may wake up and realize it is working class Americans that keep this nation going and if they keep abusing us this country is done.

[goldesprit]

"President" Bush has been manipulating the stock market through his "administration"--as they warned us on the Homeland security web site--if you read it carefully--the stock market is...protected.
However--if Bush is having a bad day...its entirely possible he can throw a fit; and voila, way down goes the suddenly unmanipulated market.

[mcv57]

watched Oliver Stone''''s "Nixon" last night (with Anthony Hopkins). I am convinced that the U.S. President is powerless against the "wild beast" that Nixon has referred to.

Although, if the Bushwacker thinks he can profit from such a dark, wicked, wild beast, he is going to find that there is a price to be paid. While he sits in jail, this country is going to lay waste in proverty.

[mcv57]

I watched Oliver Stone''s "Nixon" last night (with Anthony Hopkins). I am convinced that the U.S. President is powerless against the "wild beast" that Nixon has referred to.

Although, if the Bushwacker thinks he can profit from such a dark, wicked, wild beast, he could to find that there is a price to be paid.