Dow Falls Below 8,000, S&P At 5-Year Low

Investors Rattled By Economy, Fate Of Big 3 Automakers; Consumer Prices Take Record Plunge

(CBS/AP)  Wall Street hit levels not seen since 2003 on Wednesday, with the Dow Jones industrial average plunging below the 8,000 mark as the fate of Detroit's Big Three automakers amid a slumping economy disheartened investors.

A cascade of selling occurred in the final minutes of the session as investors yanked money out of the market. For many, the real fear is that the recession might be even more protracted if Capitol Hill is unable to bail out the troubled auto industry.

Investors also scoured economic data that included minutes from the last meeting of the Federal Reserve in which policymakers lowered projections for economic activity this year and next. Economic worries caused across-the-board selling, with financial stocks particularly hard hit.

The S&P 500, widely considered the broadest snapshot of corporate America, slipped 6.12 percent to 806.58; and the Dow gave up 5.07 percent to 7,997.28. Both closed at their lowest levels since March 2003.

The financial crisis has already wiped out $6.69 trillion of value from the S&P 500 since its October 2007 high, and many fear more is to come. Stocks have traded with high volatility in the past few months, with the major indexes soaring only to plunge an hour later as the market looks for a bottom.

"I don't know what the catalyst is going to be where we turn the corner and people start buying stocks wholeheartedly again," said Jon Biele, head of capital markets at Cowen & Co. "People got out of the way. The financial situation hasn't changed."

The selling on the New York Stock Exchange was staggering - only 158 companies that trade there finished the day positive while 2,943 declined. Volume again was light, a symptom of the market's recent volatility, with 1.63 million shares exchanging hands by the close.

Smaller stocks also got clobbered. The Russell 2000 index gave up 35.13, or 7.85 percent, to 412.38.

Meanwhile, American consumers hit by a seemingly endless stream of bad news, from vanishing jobs to shrinking retirement accounts, got a small dose of relief: lower prices at stores.

The Consumer Price Index, the country's most closely watched inflation gauge, dropped 1 percent in October, the biggest monthly decline on records dating back to 1947, the government reported Wednesday.

The big drop reflected not only a huge fall in gasoline and other energy costs, but widespread declines in other areas. Core consumer prices, which exclude food and energy, fell by 0.1 percent last month, the first drop in core prices in more than a quarter-century.

What's getting cheaper? New cars as dealers sold nearly 130,000 fewer of them in October; clothing and airfare are also down, reports CBS News correspondent Ben Tracy. But energy prices are the loss leader - down 8.6 percent in October, mainly due to a 14 percent drop in the price of gas.

Just a couple of months ago the fear was inflation. Now, Tracy reports, some economists say today's numbers, which show a cut in the cost of living, could mean a jumpstart for the ailing economy.

"Their wages will be worth more, so it probably will aid the recovery," says economist Peter Morici.

But while lower prices may be exactly what cashed-out consumers need, prolonged price drops would cause serious deflation - potentially putting more stores out of business and more people out of work, reports Tracy.

"When prices start to go down, when you have deflation, consumers a lot of the time basically sit back and wait for more bargains, for more sales," Gross says.

The big retreat in consumer prices reflects a remarkable turnaround from just a few months ago when a relentless surge in energy prices raised concerns that inflation could get out of control.

Over the past 12 months, consumer prices have risen by 3.7 percent, substantially below the 17-year high of a 12-month price increase of 5.6 percent set this summer. Core prices are up 2.2 percent over the past 12 months.

This price moderation is giving the Federal Reserve the room it needs to cut interest rates to battle the economic slump. The central bank is expected to cut the federal funds rate, the interest that banks charge each other, down to 0.5 percent at its December meeting, even lower than the 1 percent where the funds rate stands currently. The 1 percent funds rate ties the record low for the past half century.

Even with the monthly price reprieve, consumers are in no mood to go on a shopping spree. They have been cutting back sharply on spending because of the strains from job losses, shrinking nest eggs and falling home prices.

The retrenchment jolted the national economy into reverse in the third quarter. Many predict economic activity will continue to shrink through the rest of this year and during the first three months of next year, more than satisfying one definition of a recession. That is, two straight quarters where the economy contracts.

Another report out Wednesday showed that the housing market, one of the economy's weakest spots, continues to be in a deep funk. Builders slashed home construction 4.5 percent last month driving it down to the lowest level on records going back to 1959.

[txgrouch2007]

tHEY ARE LOOKING FOR THE MARKET TO END UP AROUND 5500 TO 5800 IN JUST A FEW MORE WEEKS.
Posted by rxzyu at 07:08 AM : Nov 20, 2008

Me, too. It''s the simple extrapolation from around 100 in 1920, doubled every 15 years.

Checkpoint around 1990, the last time the Dow had a "natural" value that was not influenced by a boom or bust. It fits.

[txgrouch2007]

But this throwing money at public education like it''''s the do all end all of humanity. And the BS they teach. Comeon.
Posted by standlee5 at 11:52 PM : Nov 19, 2008

The ONLY thing public schools teach is how to be a criminal. Public schools are criminal factories, pure and simple.

I worked as a math teacher in a public high school for a while. I had to quit before I had one full year of service, because it was making me physically ill from the stress of being attacked constantly, mostly by THE PARENTS who didn''t want their "babies" to take ANY RESPONSIBILITY WHATSOEVER FOR ANYTHING.

I thought I was going to help students learn math. WHAT A JOKE! First, I discovered that they don''t WANT to learn. Then, I discvoered that THEIR PARENTS DON''T WANT THEM TO LEARN, either. So they call the principal and threaten to get you fired.

NEXT, I discovered that THE PRINCIPAL IS ALWAYS ON THE PARENTS'' SIDE.

The parents are on the kids'' side. The principal takes the parent''s side. The result - THE KIDS ARE RUNNING THE SCHOOL, and they get to do WHATEVER THEY WANT. And that generally doesn''t involve learning anything - well, anything about ACADEMICS. Drugs, gangs, getting pregnant, yah they learn THAT real fast.

Parents expect the schools just to spend thirteen years providing a free babysitting service, then the kiddo gets a free diploma at the end, even though she or he didn''t learn SQUAT the whole time.

[mikezembill]

tHEY ARE LOOKING FOR THE MARKET TO END UP AROUND 5500 TO 5800 IN JUST A FEW MORE WEEKS.

[doctxt]

10 YEARS AGO-ALL OVER THE NEWS-"PEOPLE HAD TO CHOOSE-MORTGAGE PAYMENTS OR GAS FOR CARS". THEY CHOSE GAS-THE MORTGAGE INDUSRTY CRUMBLED-FED SAYS SOME FAULTY PAPER AGREEMENT BETWEEN BANKS AND INVESTORS CAUSED IT-WHEN HIGHLY PAID FEDERAL ECONOMIC GURUS LOOKED THE OTHER WAY-OIL COMPANIES REAPED $60 TO $80 MILLION A YEAR (TIMES) 10 YEARS = $800 MILLION (ONE COMPANY ALONE)-NO WONDER THE %u201CFAILOUT PLAN%u201D IS NOT ENOUGH%u2026 WHATEVER IT IS, THE PEOPLE MUST NOW PAY FOR IT.

FAILOUT PLAN IS SUPPOSED TO BAIL OUT ILLEGAL CITIZENS WHO BOUGHT AMERICAN SOIL VIA FANNIE AND FREDDIE-THEY GOT BAILED OUT FIRST, THE PLAN IS NOW NOT WORKING FOR ANYONE ELSE%u2026

AFTER GOV%u2019T APPROVAL & MAE, MAC BAILOUT - GURUS CHANGE- WANT TO INVEST IN BANKS INSTEAD OF HELPING PEOPLE-NOW THE GURUS ADMIT THE ECONOMY IS IN A SLOWDOWN.

PRICE OF OIL COMES DOWN, BUT CONSUMPTION NEVER CHANGED.

ABORTION IS OK, BUT THE BILL IS ON FUTURE GENERATIONS THAT WILL BE KILLED, AND THEY ROB THE RETIREMENT EGGS OF US ALL%u2026

THIS IS A BALANCED BUDGET-FOR THE GREEDY!

EQUATION OF THE DAY:

FED LENDS OUR $ TO BANKS FOR 1% (PLUS) WE BORROW FROM BANKS @ 10 TO 20% (PLUS) 8% TAXES (EQUALS) WE FOREVER LOSE (PLUS) FED & BANKS WIN (MINUS) TRUTH (EQUALS) DEPRESSION (TIMES) MORE LIES (EQUALS) POLITICIANS (PLUS) INVESTORS (DIVIDED BY) GREED (MINUS) LAW (MINUS) GOD (EQUALS) REVOLUTION!!!

[standlee5]

I guess we do agree on some things. But rest assured that this is rare event. LOL

Posted by incog-nito at 12:01 AM : Nov 20, 2008

right. well, these are strange times anything can happen.

[incog-nito]

Posted by standlee5 at 11:52 PM : Nov 19, 2008

I guess we do agree on some things. But rest assured that this is rare event. LOL

[pensacola98]

A month ago, I predicted the stock market to fall to the 7,400 level. It has nothing to do the election results. It has everything to do with institutional investors moving their money around the world.

The signs are approaching that all those who directed their 401K''s to European Equities can now move all their funds to Domestic equities. The US dollar is almost ready to gain irreversibly against the Euro Dollar. Timing for the reversal synchronizes when the DJIA falls to 7,500. That is just days away.

[standlee5]

Posted by incog-nito at 11:50 PM : Nov 19, 2008

well, we agree on something. I like summer break and i think it''s good for kids. Tradition ya, know. But this throwing money at public education like it''s the do all end all of humanity. And the BS they teach. Comeon. Put some public service announcements on MTV you''d get the same benefit.

[incog-nito]

Posted by standlee5 at 11:41 PM : Nov 19, 2008

I''m all for reducing time spend in high school. The teaching level here is at least two years behind other countries. Even college-level education has not kept up. It''s more about getting "credentials" than actually learning real-world skills.

Furthermore, I''d like to go to year-round schooling, with maybe a 2-week break between quarters. Summer "vacation" is a waste of time. Kids forget a lot of what they learned. The parents still need to work, and so kids end up hanging around the malls getting into trouble.

[standlee5]

Posted by incog-nito at 11:19 PM : Nov 19, 2008

Dude, you''re not getting my point. We''re spending 14K per kid per year, more than any other country by far, and we''re not keeping up with science and math and have a huge drop out problem. Throwing money at the problem isn''t working. Bill Ayers'' model for education is NOT WORKING.

Teach kids the basics. We need to go straight back to the basics. Reduce High School to two years and if merited than four years for college bound honor students. At least they''ll get two focused years of High School instead of a bunch of watered down BS that is required by state. Give kis what they need to succeed not some BS social engineering *** put together by a bunch of activists.