A day that dawned bleakly on Wall Street turned even darker late Thursday as an afternoon sell-off sent the Dow Jones industrial average down more than 360 points, or 2.6 percent. Investors worried that Citigroup’s woes might be worsening and that consumers would not spend freely this holiday shopping season.
The broader Standard and Poor’s 500-stock index fell by a similar percentage, erasing the gains — and more — that followed Wednesday’s decision by the Federal Reserve to lower interest rates again.
Many investors appeared to have second thoughts about their initial reaction to the Fed’s move, focusing Thursday on the central bank’s statement suggesting that it was reluctant to reduce rates much further, even as analysts expect the economy to slow further in the next few months.
“The market came to realize that they’re not going to get any more freebies from the Fed,” said Ryan D. Larson, senior equity trader at Voyageur Asset Management.
On Wall Street, traders were greeted in the morning with some disappointing news about business prospects. A downgraded rating for Citigroup from an influential analyst, revived fears that banks still have more losses to come from the subprime mortgage collapse. And Exxon Mobil, despite soaring oil prices, reported weaker-than-expected third-quarter earnings.
Adding to the woes, Chrysler said later in the day that it would cut another 11,000 jobs, suggesting that the housing bust and higher oil prices are continuing to take a toll on the domestic auto industry.
And the Commerce Department released a report on consumer spending that, on another day, might have been mildly reassuring. While consumption continued to grow in September, investors homed in on the information that it advanced at a slower pace, underscoring fears of a fourth-quarter economic slump.
“People are getting nervous looking to the holiday season,” said Anthony Conroy, head equity trader at BNY ConvergEx Group. “People are going to be spending less because they’re paying more for oil and mortgage payments.”
The Dow industrials, which traded about 200 points lower through much of the day, finished at 13,567.87, a loss of 362.14, or 2.6 percent. Still the index remains only 4.2 percent below its all-time high, set less than a month ago on Oct. 9.
The Standard & Poor’s 500-stock index closed down 40.94 points, or 2.64 percent, at 1,508.44. And the technology-focused Nasdaq composite index lost 64.29 points, or 2.25 percent, ending the day at 2,794.83.
Small companies fared a lot worse. The Russell 2000 index of smaller-capitalization issues dropped 32.84 points, or nearly 4 percent, to close at 795.18.
On the New York Stock Exchange, declining issues outnumbered those advancing by a margin of more than 6-to-1. Volume was a respectable 1.75 billion shares.
Steve Sachs, director of trading at Rydex Investments, said investors were now facing an uncertain outlook without the assumption of a Fed rate cut. It was a day, he said, for traders to play it safe.
“Today was nothing more than a round of profit-taking,” Sachs said. “The market’s been rallying. Why not take some off the table?”