Stocks plunge again, hitting five-year low

Some analysts hope that heavy selling is a sign of a market bottom.

NEW YORK (AP) — Stocks plunged for a second straight day Thursday, falling to a range not seen in more than five years as financial and energy stocks tumbled while demand for the safety of government debt spiked to historic levels.

Stocks saw the most intense selling late in the session after hopes faded that lawmakers would quickly put together an aid package for U.S. automakers and as the Standard & Poor’s 500 index broke through lows established in 2002. That breach of a key technical threshold sent a shudder through the market and touched off further selling.

The Standard & Poor’s 500 index fell 6.7 percent to the 752 level, below the closing low of 776.76 logged on Oct. 9, 2002. The Dow Jones industrial average, meanwhile, fell 445 points, or 5.6 percent, to its lowest close since March 2003. The decline brings the Dow’s two-day drop to 873 points, or 10.6 percent, its worst two-day percentage loss since October 1987.

Financial stocks plunged on worries that the government’s financial rescue won’t be sufficient to cover banks’ losses. Meanwhile, a sharp drop in oil prices weighed heavily on energy companies.

Thursday’s pullback came amid heavy volume, a welcome sign for some investors who are looking for the market to experience a cathartic sell-off that could lay the groundwork for a recovery. Heavier volume can signal investors are scared enough to sell rather than simply sitting on the sidelines, which can result in relatively light volume.

Observers said, however, that the selling has just as much to do with entrenched pessimism about the prospects for many corners of the economy.

“Unrelenting gloom has taken over the markets,” said Dana Johnson, chief economist at Comerica Inc. “The economic news, the concerns about some major financial institutions, the concerns about the auto sector, earnings reports, everything is coming out in a way that is just provoking a massive selling in the stock market.”

“Back in October we were looking at a potential catastrophic meltdown of the credit markets, and that didn’t happen,” he said. “But that doesn’t mean tremendous damage hasn’t been done to the economy.”

According to preliminary calculations, the Dow fell 444.83, or 5.56 percent, to 7,552.45. It was the Dow’s biggest percentage drop since Oct. 22 and its lowest close since March 12, 2003.

Gus Scacco, managing director at AG Asset Management, said investors can’t manage to regain confidence as the market continues to plumb new depths. Stocks fell to their lowest level in more than five years Wednesday.

“We’re trying to make a bottom but we keep breaking through,” he said.

Jon Biele, head of capital markets at Cowen & Co., said investors are bracing for more bad news.

“The view on the floor is nobody is sure what the next stop is,” he said. “I think the market is expecting another shoe to drop.”

“Some people think this is the capitulation we’ve been waiting for,” he said. “All along we’ve been hoping for a real violent sell-off, and the end of the day today was a pretty dramatic move.”