"Hopefully, they're the last two shoes to drop," Schrader said.
(How many banks could fail before this is all over? Click on the video at left.)
Hedge-fund manager Jim Chanos, who makes money betting that companies' stock prices will fall, said financial stocks have probably seen the worstand his fund has fewer short positions now than it did in the past.
Lehman Brothers shares, which shed more than 50 pecent in the first three days of the week, pared its decline today to 30 percent from 40 percent, leaving the stock trading around $5 a share, as the word in the market is that Lehman is now actively shopping the entire firm and that a move could happen within days. The stock has taken a beating as the firm has failed to reassure investorsof its ability to do anything it has promised, from raising capital, to selling its asset-management unit or selling the entire firm.
On Wednesday, a slew of firms, including JPMorgan, Wachovia, Goldman Sachs, Citigroup and Sanford Bernstein widened their projected losses for Lehman and cut their price targets on the stock.
Sanford asserted that Lehman would not suffer a similar washout as Bear Stearns experienced.
Washington Mutual shares, which have been under pressure since the firm ousted its CEO on Monday, sank below $2 for the first time since 1990 as investors increasingly worry that the largest U.S. savings & loan might not be able to raise enough capital or find a buyer. On Wednesday, Standard & Poor's slashed its outlook for the bank.
(Should you dump shares of Lehman and WaMu? Click here to find out what the market pros say.)
Other financial shares were also under pressure, including Merrill Lynch and Goldman Sachs .
Insurer American International Group and Citigroup were among the biggest drags on the Dow, along with General Electric .
JPMorgan , it's worth noting, was one of the only financials holding above water all day.
In economic news, jobless claims fell by 6,000 last week, less than expected. Continuing claims hit their highest level since October 2003. Separate reports showed import prices fell 3.7 percent and export prices skidded 1.7 percent, both worse than expected, while the trade gap widened by 5.7 percent to $62.2 billion, its widest in 16 months.
Crude oil ended near $100 a barrel. The pressure of a rising dollar and concerns about global demand see-sawed against earlier bullish news that OPEC had agreed to cut output by about 500,000 barrels per day. London Brent crude actually fell below the $100 mark.
Shares of auto makers were also in focus after JPMorgan said it's becoming increasingly likely that the federal government will provide loans to the industry, easing liquidity concerns.
General Motors advanced despite a Wall Street Journal report that the government is pressuring the company to absorb $1.5 billion in pension obligations of parts producer Delphi.
Over on the Nasdaq, Sirius XM Radio was the top drag after the company warned that revenue and subscriber growth in 2009 would fall short of analysts' expectations.
Apple declined, after it debuted its thinnest iPod ever this week. Rival Research In Motion advanced amid rumblings that its readying a BlackBerry assault of its own, including the first fold-up BlackBerry and even a touch-screen BlackBerry.
In earnings news, Campbell Soup reported its profit jumped 31 percent as price increases and new products such as low-sodium soups helped offset high commodity prices. The company, which makes everything from soup to Prego pasta sauce, V8 juices and Peperidge Farm cookies, also said sales growth in the just-started 2009 fiscal year should top its forecast.
Railroad CSX raised its forecast for 2008 and beyond, citing further room for pricing growth and industry momentum. The company now expects 2008 earnings of $3.65 to $3.75 a share, up from its prior estimate of $3.40 to $3.60 a share, and pegs growth through 2010 that is 20 to 25 percent higher than that, up from its initial estimate of 18 to 21 percent growth.
Today is the seventh anniversary of the Sept. 11 attacks. The New York Stock Exchange held a moment of silence at 9:25 a.m. ET to remember the victims. Nasdaq held its moment of silence at 10:29 a.m.
STILL TO COME:
FRIDAY: Producer prices; government reading on retail sales; business inventories; consumer sentiment
Send comments to cindy.perman@nbcuni.com.
