Markets Dive in Last Hour, Carving New Lows

Wall Street doubled down on its losses on Thursday, just a day after financial markets closed at their lowest point in nearly six years.

In a day dominated by fear and uncertainty, financial markets plunged in late trading, carving new lows, in a melee of selling that cut across every sector of the market. Energy companies took the heaviest blows as the price of crude oil fell below $50 a barrel, and financial stocks sank sharply on fears that billions in government aid have done little to cure the financial and credit crises.

“The market can only take so many punches,” said Quincy Krosby, chief investment strategist at The Hartford. “This market needs a break. It needs clarity. The question is, when and how much?”

No one had an answer on Thursday afternoon.

The Dow Jones industrial average set another new low for the year on Thursday, shedding 444.99 points or 5.5 percent to close at 7,552.29. The wider Standard & Poor’s 500-stock index fell an even steeper 6.7 percent, adding to its losses after tumbling 6 percent on Wednesday.

After Thursday, the S.&P. index had dropped beneath its bear-market lows of 2002, and was lower than any point since 1997.

As stocks hopped from red to green and back again before beginning their final spiral, investors continued to seek cover in safe havens like Treasury notes and gold, driving those prices higher. The yield on the benchmark 10-year Treasury dropped to 3 percent in a sign of how many investors are seeking shelters for their money.

And a new report that jobless claims had crested to their highest levels in 16 years reminded investors that the frail economy continues to weaken.

“We think it’s going to continue to go lower,” said Ryan Detrick of Schaeffer’s Investment Research. “We don’t think people are scared enough. They’re just not showing enough fear. People are numb to this, they’re almost immune to it.”

Financial shares, which took the brunt of Wednesday’s losses, continued their bad streak on Thursday. Citigroup fell by double digits for a second day, to less than $5 a share, despite news that Prince al-Walid bin Talal of Saudi Arabia was increasing his stake in the troubled banking giant to 5 percent. Citigroup closed down 26 percent.

Financial companies including J.P Morgan, the Bank of America, Morgan Stanley and Merrill Lynch all lost more than 10 percent.

Shares in America’s two largest automakers finished higher after Congressional leaders said any proposal to bail out the auto industry would fail if it were put to a vote this week. Democratic leaders from the House and Senate criticized the executives of Ford, Chrysler and General Motors, and said the automakers needed to make a more persuasive case that they would be responsible stewards of $25 billion in federal aid.

On Thursday, new government data reinforced the economic gloom on Wall Street. the Labor Department reported that new claims for unemployment benefits rose to a seasonally adjusted 542,000 last week, the highest level since July 1992. On Capitol Hill, the Senate was expected to take up a bill extending unemployment assistance to people whose benefits have expired.

Economists said the swelling jobless numbers were creating a vicious circle between Wall Street’s losses and the afflictions of the broader economy.

“The profit drag on corporate America is widening and deepening, and this is leading to more layoffs and cutbacks in capital spending, which is extending and deepening the recession,” said Stuart Schweitzer, global markets strategist for J.P. Morgan Private Bank. “We’ve gotten into a full-blown, self-feeding downturn.”

Investors sold off early Wednesday after confronting data that showed an unexpectedly large drop in consumer prices, which suggested deflation could become the newest problem for policy makers. The Dow fell more than 5 percent Wednesday while the Nasdaq fell more than 6 percent.

“The problem is there is absolutely no silver lining visible,” said Arjuna Mahendran, head of Asian investment strategy at HSBC Private Bank in Singapore. “The financial crisis may now be at its tail end and we are now in a second phase where corporate distress is the key issue. A third phase may come early next year, when emerging markets will really struggle as the crisis widens and exports continue to shrink.”

Oil prices slipped below $50 a barrel, settling at $49.62 a barrel, down 7 percent.
Asian markets stumbled badly. The Tokyo benchmark Nikkei 225 stock average finished 6.9 percent lower, taking its loss to the year to nearly 50 percent. Government data Thursday showed Japanese exports were down 7.7 percent in October from a year earlier, the steepest decline since December 2001. The drop contributed to Japan’s $665.8 million trade deficit.

While a drop had been expected — overseas consumers have long been cutting down on spending, and the yen’s strength against other currencies makes Japanese goods more expensive overseas — the amount of the decline does not bode well for the wider economy.