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Stocks plunged Thursday as anxiety about the economy and the government's wheel-spinning on the auto bailout and TARP plagued the market throughout the day, culminating in a massive final-hour selloff that saw major indexes crash through resistance levels.
The Dow Jones Industrial Average shed 444.99, or 5.6 percent, to 7552.29, its lowest close since March 2003. The Nasdaq lost 5.1 percent to close at 1316.12, also a six-year low.
The S&P 500 index was the hardest hit, falling 6.7 percent to 752.44, its lowest close since 1997.
Trading volumes were heavy, with about 2.23 billion shares changing hands on the New York Stock Exchange. The CBOE Volatility Index, widely considered the best gauge of fear in the market, shot back above 80.
"We've created — I can't believe it — the TARP crisis #2. I thought we'd have learned our lesson after TARP crisis #1," said Jim Paulsen, a strategist at Wells Capital Management in Minneapolis. "Two weeks ago, the leadership took on a fear-mongering campaign to sell the TARP ... The next leg started almost the minute the Treasury Secretary said, 'We're not going to do this TARP thing.'"
And, Paulsen said, once major indexes got close to their dot-com bust lows, there was an almost gravitational pull to test those levels.
"We got close enough [to the lows] here ... and it was just like, how could you not just try this sucker on?" Paulsen said.
Stocks had attempted a rally following a report that a compromise has been reached on an auto bailout. But Democrats rejected the quick-fix plan and the market retreated. Comments by Treasury Secretary Henry Paulson that the government shouldn't be too hasty, offered the market no comfort.
Today's decline followed Wednesday's crushing selloff that saw the Dow close below 8,000 for the first time in more than five years. In those two days, the Dow has lost about 872 points, the biggest two-day point drop since Nov. 6, and the third-biggest point drop of all time.
The S&P 500 is now more than 52 percent below its October 2007 record high, making the current bear market the second biggest on record. The current decline is exceeded only by the 83 percent drop between 1930 and 1932, according to the Stock Trader's Almanac.
The declines have been so bad that now more than 100 stocks in the S&P 500 are below $10.
Citigroup [C
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] stock dropped another 26 percent, ending at $4.71 a share, a nearly 16-year low. Earlier, the stock had gotten a little bounce following news that Saudi Prince Alwaleed Bin Talal Alsaud had raised his stake in the company to 5 percent. However, the stock resumed its descent after investors figured out that the prince's investment was likely just dollar-cost averaging.
From 'Fast Money':
More worrisome, however, is the stock's flirtation with the $5 mark. Most institutional investors and pension funds are barred from owning stocks below $5. So if Citigroup's stock holds below that level, it could trigger a wave of selling.
"We're back at the same dynamics pre-TARP, when, a stock slipped below $10 and it was sent into a death spiral—no matter whether it had a good or bad balance sheet," Paulsen said. "As soon as you took out the TARP again, Citi went on a death spiral," he said. "We keep creating more and more collateral damage."
JPMorgan shares [JPM
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] fell 18 percent after the firm announced plans to cut about 10 percent of its investment-banking staff.
General Motors [GM
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] and Ford [GM
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] ended up 3.2 percent and 10 percent, respectively, even as the Big Three auto makers' request for a bailout this week was rejected on Capitol Hill. Earlier, the stocks had rocketed more than 40 percent after the Detroit Free Press reported that key senators had reached a compromise on the $25 billion bailout, but the gains began to evaporate after Democratic leaders rejected this quick-fix plan, saying auto makers needed to come up with a plan before they received any money. A deadline of Dec. 2 was set for auto makers to submit their plans; Congress will reconvene the week of Dec. 8.
Meanwhile, GMAC, the money-losing partnership between GM and Cerebrus Capital Management, announced that it has applied to become a bank-holding company.
Chrysler hopes to restart merger talks with GM if the government comes up with a bailout package for auto makers, the Financial Times reported Thursday.
Economic data came in worse than expected: The Philadelphia Federal Reserve reported its gauge of regional manufacturing activity contracted further, to minus-39.3 in November from minus-37.5 in October. Nationwide,leading indicators dropped 0.8 percent in October, after a downwardly-revised 0.1-percent gain in September. Economists had expected a reading of 35 on the Philly Fed and minus-0.6 percent in leading indicators.
Jobless claims rose by 27,000 to a seasonally adjusted 542,000 last week, well above the 508,000 economists had expected and the highest since July 1992. Continuing claims rose by 109,000 to 4.01 million.
Boeing [BA
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] shares fell 1 percent after the aerospace giant announced plans to cut about 800 jobs, or one-quarter of the staff, from its defense unit operations in Wichita, Kansas.
Oil ended below $50 a barrel, hitting its lowest level since May 2005, leaving a string of energy-stock carnage in its wake. ExxonMobil [XOM
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] dropped 6.7 percent, while Chevron [CVX
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] lost 8.8 percent and Valero Energy [VLO
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] shed 15 percent.
However, oil's break through the key $50 level offered some economists a sliver of hope.
Today's economic data show that “the decline in the economy is still accelerating. We’re still in freefall right now in terms of this quarter," Stuart Hoffman, chief economist at PNC Financial Services Group, told CNBC. But, at some point, he said, the rapid decline in oil is going to have a stimulative effect.
"It's a billion dollars for every penny that gasoline goes down. We're talking $150 to $200 billion dollars compared to last summer consumers are not going to be pumping into their tanks," Hoffman said. "Right now, admittedly, in this freefall, it’s not offsetting the loss of confidence but you gain some confidence, you see that drop in oil and other commodity prices, corporate profits, consumer spending — I think that’s a little bit of a silver lining in what is admittedly a pretty dark sky."
General Electric [GE
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] skidded 11 percent after the conglomerate, the parent of CNBC, said it has no plans to raise capital from sovereign-wealth funds.
PepsiCo [PEP
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] slipped 3.5 percent after the beverage giant reiterated its full-year outlook.
The Federal Reserve pared its outlook for economic growth through 2009 leading market watchers to expect further cuts to the base interest rate. It also added to the growing fear of a deflationary spiral taking hold of the economy.
-- Reuters contributed to this article.
Still to Come:
FRIDAY: Fed's Plosser speaks; Earnings from Heinz
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