Stocks drop on worries about economy

NEW YORK (AP) — Investors around the world are betting that even with government stimulus and bailout programs, the global recession will just have to run its course.

The problems that slammed stocks last year — ailing banks, foundering automakers, tumbling home prices and cash-strapped consumers — haven’t let up. Instead, the issues have festered, and are threatening to push U.S. stocks back to levels not seen since the late 1990s.

As Obama signed his $787 billion stimulus bill and automakers scrambled to come up with restructuring plans, the Dow Jones industrial average closed down 297.81 points, or 3.79 percent, at 7,552.60 — just 31-hundredths of a point above its post-meltdown Nov. 20 close of 7,552.29, which was its lowest close in 51‚Ñ2 years.

The drop on Wall Street followed sharp pullbacks on overseas exchanges; investors around the world were looking at the reality of a delayed recovery — delayed for who knows how long.

“We don’t think the recession’s over until at least the middle of the year, and that’s even starting to seem very early,” said JPMorgan equities analyst Thomas J. Lee, adding that the market’s worries are “nothing new — the magnitudes are worse.”

The stock market is usually regarded as a forward-looking mechanism, but Lee pointed out that about one-third of the time, the S&P recovered around the same time as the economy.

“I’m tilting toward thinking we’re going to have lows in mid-July,” Lee said. “In the meantime, we’re stuck in a range.”

Wall Street is waiting for more specifics from the government on its various efforts to more adequately assess when to expect growth again. Obama is scheduled to discuss a program today on preventing foreclosures, but investors are particularly anxious for details from the Treasury Department about its new rescue plan for the troubled banking sector.

Over the weekend, a meeting of Group of Seven finance ministers failed to produce any specific steps to revive the global financial system, either.

“The government has their hand on the tiller. They’re steering. And that’s the problem — the markets are not confident the proper course has been set yet,” said Henry Herrmann, chief executive officer at investment management firm Waddell & Reed.

A question on the street is whether the major indexes will breach their lows of last November, when investor sentiment was also sliding.

The Dow came within 102 points of the five-year trading low of 7,449.37. The Standard & Poor’s 500, index which fell 37.67, or 4.56 percent, to 789.17 Tuesday, came with 48 points of its 11-year low of 741.02.

With the way the market has been trading, those milestones could be pierced in one or two sessions.

The Nasdaq composite index fell 63.70, or 4.15 percent, to close at 1,470.66 Tuesday. The Russell 2000 index of smaller company stocks fell 19.46, or 4.34 percent, to 428.90.