The sell-off on Wall Street intensified Wednesday, sending the Dow Jones industrial average down more than 700 points after grim retail sales data stoked fears that a punishing recession may be looming — if it’s not already under way.
The nearly 8 percent plunge — the largest percentage decline since 1987 — pushed the Dow back below the 9000 level and erased most of the remaining gains from Monday’s torrid 936-point rally. A government report that retail sales slumped 1.2 percent in September — far worse than the 0.7 percent that economists had expected — sparked the sell-off.
“I believe the economy is now in a recession,” said Richard DeKaser, chief economist at banking company National City Corp. in Cleveland. “What today’s retail sales report implies is that it will be steeper than many of us had feared.”
The Dow fell 733.08 points, or 7.9 percent, to 8577.91. The broader Standard & Poor’s 500 index fared even worse, losing 90.17 points, or 9 percent, to 907.84 — less than 10 points above the low it hit during last week’s historic market swoon. The tech-heavy Nasdaq composite index slumped 150.68 points, or 8.5 percent, to 1628.33.
All 10 industry sectors of the S&P 500 were down for the day, led by energy stocks, which were hit by another decline in oil prices. Crude fell $4.09, to $74.54 a barrel.
Halfway through October, the Dow has risen only one day this month: Monday’s record surge. It has lost ground in 11 of the past 13 sessions.
Even as fears about the financial system quieted following the government’s plan to inject capital directly into banks, the retail sales data demonstrated the difficulty that stocks may face in the coming months as investors confront what is likely to be a torrent of depressing economic news.
Many investors remain wary of the market because they have no idea how bad the global economy will become, and they are more uncertain than ever about the outlook for corporate profits.
Retail sales go right to the heart of consumer spending, which makes up more than two-thirds of the economy.
Don Hodges, who runs the Hodges mutual fund in Dallas, argued that “forced liquidations” by portfolio managers were hurting the market even more than the public’s reaction to the onslaught of bad economic news.
Heavy redemptions from beleaguered investors at hedge funds and mutual funds, he said, have forced money managers to raise cash by dumping large and liquid but already depressed stocks like Chesapeake Energy, which plummeted 26 percent, and Transocean, which tumbled 19 percent.
“It’s like being in a movie house when someone hollers, ‘Fire!'” Hodges said. “Everyone is just trying to get out that door, and investment managers are having to sell stocks they don’t want to.”
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Dow’s biggest losses
The Dow Jones industrial average has recorded five losses of more than 600 points in a day. Three have come in the past month. Here’s the list: %% Date Point drop Percentage drop Sept. 29 -777.68 -6.98 Wednesday -733.08 -7.87 Sept. 17, 2001 -684.81 -7.13 Oct. 9 -678.91 -7.33 April 14, 2000 -617.77 -5.66 %% Sources: Dow Jones, Bloomberg
