Recession Fears

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Personalize Ticker | Updated 4:00 PM, 10/15/2008	Disclaimer | © MarketWatch Inc. Source: Interactive Data Corp

Wall Street staged another massive sell-off today as recession fears gripped the market and Federal Reserve Chairman Ben S. Bernanke confirmed that an economic recovery will take time.

The Dow Jones industrial average fell more than 700 points, giving back nearly all its record gain from Monday.

The Dow closed down 7.9 percent, or 733 points, at 8,578. That follows a loss of 77 points yesterday, which nearly wipes out Monday's 936-point gain. The Standard & Poor's 500-stock index was off 9 percent, with a 90-point decline, and the tech-heavy Nasdaq was down 8.5 percent, losing 151 points.

This was the second-largest point loss in the Dow's more than 100-year history and ninth-largest on a percentage basis. Seven of the Dow's 20 greatest point losses have occurred since the recent financial turmoil began in September. The volatility has raised concerns among some analysts that stocks could slide past the losses of last week.

The markets opened down today as investors reacted to new data showing that consumer spending took an unexpectedly hard fall last month and to earning reports from several banks demonstrating the impact of the financial crisis on corporate balance sheets. But the decline accelerated in the afternoon as Wall Street digested new data from the Federal Reserve showing a slowing economy around the country and Bernanke's speech today.

After a massive rally Monday, analysts were expecting some pull back but had hoped investors found comfort in the latest government efforts to stabilize the financial sector, including making direct capital injections into major banks. Following yesterday's less dramatic declines, Wall Street's attention seems focuses on economic weakness and feeble corporate profits.

Investors' concerns were reinforced by the Federal Reserve's release of its Beige Book, information about the economy from its 12 regional banks, that found economic activity weakening across all its districts and manufacturing slowing in most areas.

That was preceded by a speech by Bernanke, who said that government efforts to rescue the economy will not work immediately.

"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 said.

The Fed news was exacerbated by a bleak consumer spending report today from the Commerce Department for September, peak back-to-school shopping season, which reinforced fears that the country is slipping into a recession. Consumer spending makes up two-thirds of economic activity.

"People intuitively knew we were in a recession but don't like having it confirmed to us," said Matt McCormick, portfolio manager and banking analyst at Bahl & Gaynor Investment Counsel in Cincinnati.

Retail sales were down 1.2 percent in September, the steepest monthly decline in three years, according to the Commerce Department.