Stocks plunge anew, pointing to recession

The Dow has given up nearly all of Monday’s historic gain.

NEW YORK (AP) — Investors agonizing over a faltering economy sent the stock market plunging all over again Wednesday after two disheartening reports convinced Wall Street that a recession, if not already here, is inevitable. The market’s despair — fed by a stream of disheartening economic data — propelled the Dow Jones industrials down 733 points to their second-largest point loss ever, and the major indexes all lost at least 7 percent.

The slide meant that the Dow, which lost 76 points Tuesday, has given back all but 126 points of its record 936-point gain of Monday, which came on optimism about the banking system in response to the government’s plans to invest up to $250 billion in financial institutions.

Wednesday’s sell-off began after the government’s report that retail sales plunged in September by 1.2 percent — almost double the 0.7 percent drop analysts expected — made it clear that consumers are reluctant to spend amid a shaky economy and a punishing stock market.

The Commerce Department report was sobering because consumer spending accounts for more than two-thirds of U.S. economic activity. The reading came as Wall Street was refocusing its attention on the faltering economy after stepped-up government efforts to revive the stagnant lending markets.

Then, during the afternoon, the release of the Beige Book, the assessment of business conditions from the Federal Reserve, added to investors’ angst. The report found that the economy continued to slow in the early fall as financial and credit problems took a turn for the worse. The central bank’s report supported the market’s belief that difficulties in obtaining loans have choked growth in wide swaths of the economy.

Fed Chairman Ben Bernanke offered a similar opinion, warning in a speech Wednesday that patching up the credit markets won’t provide an instantaneous jolt to the economy.

“Stabilization of the financial markets is a critical first step, but even if they stabilize as we hope they will, broader economic recovery will not happen right away,” he told the Economic Club of New York.

Analysts have warned that the market will see continued volatility as it tries to recover from the devastating losses of the last month, including the nearly 2,400-point plunge in the Dow over the eight sessions that ended Friday. Such turbulence is typical after a huge decline, but the market’s anxiety about the economy was also expected to cause gyrations in the weeks and months ahead.

Selling accelerated in the last hour of trading, a common occurrence during the eight-days of heavy declines. One reason for the heavy selling: Mutual funds need to unload stock to pay investors who are bailing out of the market.

According to preliminary calculations, a sell-off that intensified late in the session left Dow down 733.08, or 7.87 percent, at 8,577.91. On Monday, Sept. 29, the Dow had its largest point drop, 777.68. Wednesday’s percentage drop was the biggest since Oct. 26, 1987, which followed Black Monday, the Oct. 19 crash that sent the blue chips down 22.6 percent in a single session.

The Dow’s massive decline Wednesday marks its 20th triple-digit move in 23 sessions.

Broader stock indicators also skidded. The Standard & Poor’s 500 index fell 90.17, or 9.03 percent, to 907.84, and the Nasdaq composite index fell 150.68, or 8.47 percent, to 1,628.33.