Major indexes close sharply lower. Fears grow about economy and auto industry.
By Ben Rooney, CNNMoney.com staff writer
NEW YORK (CNNMoney.com) — Stocks fell hard on Wednesday, with the Dow closing below 8,000 for the first time since March 2003, as ongoing anxiety about the economy and uncertainty about the future of the auto industry weighed on the market.
The Dow Jones industrial average (INDU) shed more than 400 points to close 5% lower. All 30 Dow components lost ground.
The Standard & Poor’s 500 (SPX) index slid 6% to its lowest level since March 2003. And the Nasdaq composite (COMP) lost 6.5% to settle at its lowest point since April 2003.
Stocks languished for most of the day, with the selloff accelerating near the close of trade. Wednesday’s dramatic retreat erases gains made in the previous session.
“The market is fearful of the fallout from the credit crisis and the global economic slowdown,” said Todd Salamone, market strategist at Schaeffer’s Investment Research.
Those fears were writ large in the plight of the nation’s automakers. Investors are grappling with a possible bankruptcy in the automotive industry, something analysts say could have dire implications for the broader economy, as a second day of congressional hearings on the matter ended without resolution.
Shares of General Motors (GM, Fortune 500), the worst off of Detroit’s Big Three, fell 10% while Ford’s (F, Fortune 500) stock tumbled 25%.
“The crisis of confidence is back on the front page,” said said Todd Morgan, senior managing director of Bel Air Investment Advisors, a Los Angeles-based firm with nearly $6 billion in assets under management. “You need some positive catalyst, something, to change the attitude of investors [and] the auto debate is hurting confidence.”
Markets were also impacted ahead of Friday’s monthly options expiration, which can cause increased volatility in the underlying equities.
At the same time, weak readings on the nation’s housing market and a sharp decline in consumer prices reflected the challenges facing the economy and drove down shares of financial services firms.
Shares of banking giant Citigroup (C, Fortune 500) were down 23% after hitting a session low below $7 a share. Bank of America (BAC, Fortune 500) fell 14% and JPMorgan (JPM, Fortune 500) was down about 12%.
Banks often bear the brunt of downbeat economic data as investors fear they will be forced to take more losses on the illiquid assets besmirching their balance sheets.
Also on Wednesday, the Federal Reserve released minutes from its most recent meeting that showed the central bank has significantly lowered its outlook for economic activity this year and next. It also signaled that more interest rate cuts may be needed to prevent further damage to the battered economy.
Wall Street managed to hold gains Tuesday, ending in positive territory for only the second time in 10 trading days, as investors navigated a volatile market.
Big Three: Top executives from General Motors, Ford and Chrysler returned Wednesday to Capitol Hill for a second day of hearings before the Senate Banking Committee.
The executives say they urgently need “bridge loans” from the government to keep their companies afloat. Automakers have reported huge quarterly losses as they burn through cash amid dwindling sales and tight credit.
An auto industry bankruptcy would be a “huge negative for the economy,” said Abigail Doolittle, a portfolio manager at Johnson Illington Advisors in New York. It would add to already rising unemployment, making it harder for the economy to recover, she said.
Congressional Democrats have supported using some of the $700 billion bailout fund to rescue the automakers. But Republicans have expressed doubts that such an approach will work.
Critics of government intervention in the auto industry say it would only postpone the inevitable demise of companies that have failed to remain competitive.
Grim readings: Economic data cast a pall over the market, highlighting anemic consumer spending trends and ongoing weakness in the housing market.
The Labor Department’s Consumer Price Index, a key inflation reading, fell 1% in October, outpacing the 0.8% decline a consensus of economists surveyed by Briefing.com had forecast.more