Stocks plunged in the final minutes of trading as comments from Fed Chairman Ben Bernanke failed to soothe this cranky market.
The Dow Jones Industrial Average lost 508.39, or 5.1 percent, to close at 9447.11, capping the blue-chip index's worst five-day point loss ever. The index has shed more than 1,400 points, or nearly 13 percent of its value, in the past five sessions.
A little historical factoid: 508 points is how much the Dow lost on Black Monday, Oct. 19, 1987. Of course the Dow was a lot lower then, and that point value accounted for more than 20 percent of the Dow's value. Imagine that: Falling into a bear market in one day. And, if you recall, there was no big catalyst that caused that one either — it was all fear.
"What you're just seeing is fear compounding on top of more fear," said Richard Sparks, senior equities analyst at Schaeffer's Investment Research.
Speaking of bear markets, all three major indexes are now down more than 30 percent from their October highs; we passed the bear-market threshold of 20 percent a long time ago.
The S&P 500 and Nasdaq have fared even worse than the Dow, falling about 10 percent in the past two sessions.
The CBOE Volatility Index, widely considered to be the best gauge of fear in the market, notched a second straight record, closing at nearly 54. The last time the VIX closed above 51 was in 1987.
To be fair, it's not just Bernanke. Nothing seems to stop the screaming and crying for too long.
Even the Fed's announcement this morning that it will create a special facilitytobuy unsecured and asset-backed commercial paper directly from eligible issuers only bought the market a half hour of bliss, then it was right back in the tank.
On any other day, in any other market, Bernanke's afternoon remarks should've given the market a boost. It was as decisive a signal as the Fed has ever sent: Bernanke said the outlook for growth has worsened and downside risks to growth have gained.
"In light of these developments," Bernanke said, "the Federal Reserve will need to consider whether the current stance of policy remains appropriate."
Instead, stocks broke through psychological levels like a cowboy snapping wooden-railing balusters during a fall off a balcony in an old western.
"It's my opinion that the market doesn't believe enough is being done," Sparks said. "Specifically, I think they want a coordinated rate cut — certainly in the U.S., but maybe in the EU and almost world-wide," he said.
Expectations for a U.S. rate cut were heightened after Australia unexpectedly cut rates — and amid expectations that an ECB cut is almost a definite.
Talk of a possible Fed rate cut have been kicking around the market for a few days. In fact, traders said that was some of what spurred the late rally on Monday: expectations that it might happen today.
But even a rate cut may not buy us more than an hour.
"I don't think [the market] knows what it needs or wants," Sparks said. "Can't say if [Bernanke] said this, then we'd be in the green."
"Even a rate cut at this point may be viewed as being too little, too late," he said.
Shares in Asia were mixed. Japan shed 3 percent, but markets closing later received a boost after Australia cut interest by a full percentate point. European stocks declined, led by a wave of selling in U.K. bank stocks after they asked the government for money and that some may be nationalized.
Bank stocks led the decline in the U.S., with the S&P financial-sector index at its lowest point since May 1997.
Bank of America plunged 26 percent, far and away the biggest drag on the Dow, after the company launched a $10 billion capital raise, raising fears that other banks may have to raise money, too.
On Monday, Bank of America jumped the gun and reported its earnings two weeks early. After the closing bell Monday, the bank said its profit fell 68 percent and that it was cutting its dividend.
"These are the most difficult times for financial institutions that I have experienced in my 39 years in banking," Bank of America Chairman and CEO Kenneth Lewis, said in a statement.
Citigroup and JPMorgan were also big drags on the Dow.
There have been 32 dividend cuts in the financial sector this year, which have resulted in shareholders taking a hit to the tune of more than $30 billion, Standard & Poor's senior index analyst Howard Silverblatt wrote in a note.
Bank of America's earnings announcement pre-empted Alcoa, which typically kicks off the earnings season. Alcoa reports after the bell today; analysts expect a slight decline in profit.
Techs took another hit as investors worried that this global slowdown is going to crush tech demand — from companies and consumers.
IBM , Apple and Google were all down more than 4 percent.
Google is now 50 percent below its peak of $714.87 set in December 2007.
Advanced Micro Devices held onto a gain of 8.5 percent despite all the strong headwinds after the chip maker announced that it would spin off its manufacturing business into a joint venturewith Abu Dhabi-backed Advanced Technology Investment.
Amid increasing signs of panic and running for the exits in the market, there's an underlying murmur that we may be nearing a bottom and it might be time to follow Warren Buffett’s lead.
“There are signs” of a bottom, said Scott Redler, chief strategic officer at T3Live.com. “Investors should be putting money to work now month over month – not take your money out if you need it for the next five years,” Redler said. (CNBC’s Jim Cramer has taken a lot of heat for his advice yesterday on the “Today Show” that if you need money for the next five years,take it out of stocks now.)
“I feel very confident that if they put a long-term plan together and start buying S&P 500 funds, maybe even the ETF MOO, the agricultural stocks that have been crushed … I think that they can make money in the long term,” Redler said.
Still to Come:
WEDNESDAY: Weekly mortgage applications; Fed's Plosser speaks; Pending-home sales; Weekly crude inventories; Earnings from Costco, Monsanto and Ruby Tuesday
THURSDAY: Retailers report Sept. sales; Bank of England announcement; Weekly jobless claims; Wholesale trade; Natural-gas inventories; Fed's Stern speaks; Earnings from Chevron
FRIDAY: Import/export prices; Trade gap; Treasury budget; Earnings from GE