Stocks extend plunge as manufacturing declines
EmptyNEW YORK -- Wall Street extended its 2008 plunge Thursday, tumbling after a regional Federal Reserve report showed a sharp decline in manufacturing activity and as investors grew concerned that downgrades of key bond insurers could trigger further trouble with souring debt.
Each of the major indexes fell at least 2%, including the Dow Jones industrial average, which lost more than 300 points and skidded to its lowest close since last March 16.
Stocks opened higher but quickly gave up their gains after the Philadelphia Federal Reserve said its survey of regional manufacturing activity registered a negative 20.9 from a revised reading of negative 1.6 in December. The reading came in well short of what Wall Street had been expecting and underscored the seriousness of the economic concerns that have gripped both Wall Street and Washington in recent weeks.
Credit concerns also dogged Wall Street after rating agency Moody's Investors Service placed bond insurer Ambac Assurance Corp. on review for a possible downgrade. That possibility alarmed Wall Street because it would place all bonds insured by Ambac on review as well. Ratings agencies are concerned that bond insurers would be unable to absorb a spike in claims.
Investors fears of a slowing economy again dominated trading.
"The Philadelphia Fed just announced dreadful numbers," said John O'Donoghue, co-head of equities at Cowen & Co. He said if you look back at Philadelphia Fed data for similar numbers, it takes you back to the 2001 to 2002 recession.
"It's not rocket science -- the economy is slowing dramatically, and it's being reflected in economic reports."
According to preliminary calculations, the Dow, which had been up more than 50 points early in the session, closed down 306.95, or 2.46%, at 12,159.21.
The Dow is now off 8.34% for the year; there have been just 12 trading days so far in 2008, but the index's frequent triple-digit losses have now forced it to give back its 2007 gains. The Dow had its lowest close since it ended the March 16, 2007, session at 12,110.41.
The broader market indicators also plummeted. The Standard & Poor's 500 index lost 39.95, or 2.91%, closing at 1,333.25, while the Nasdaq composite index dropped 47.69, or 1.99%, to 2,346.90.
Declining issues outnumbered advancers by more than 5 to 1 on the New York Stock Exchange, where volume came to a heavy 2.17 billion shares compared with 2.11 billion traded Wednesday.
Bond prices rose as stocks fell and anxious investors sought the safety of government-issued securities. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.61% from 3.68% late Wednesday. The dollar was mixed against other major currencies.
The Chicago Board Options Exchange's volatility index, known as the VIX, and often referred to as the "fear index," jumped nearly 17% Thursday.
Light, sweet crude fell 71 cents to settle at $90.13 a barrel on the New York Mercantile Exchange after Bernanke's prediction of slower economic growth this year. Slowing growth could dampen demand for oil.