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By: Cindy Perman, CNBC.com | 15 Oct 2008 | 01:51 PM ET
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Stocks declined Wednesday as comments from Federal Reserve Chairman Ben Bernanke sent the already-rattled market to session lows.

The Dow Jones Industrial Average dropped more than 5 percent, leaving it below 8,900. The S&P 500 shed more than 6 percent and the tech-heavy Nasdaq fell more than 5 percent.

Major U.S. Indexes
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Bernanke said turmoil in the credit markets poses a "significant threat'' to an already slowing U.S. economy, suggesting an openness to further interest-rate cuts.

Earlier, San Francisco Fed President Janet Yellen delivered some of the strongest language we've seen yet from a Fed official, saying that the U.S. economy appeared to be in a recession as "virtually every major sector of the economy has been hit by the financial shock." 

And the Fed had the data to back it up. In it's montly beige-book report, so named for the color of its cover, the Fed said economic activity in all 12 Fed regions weakened as businesses anxious about the economy rethought capital investments and consumers curbed spending.

The market was already depressed following a trio of dismal earnings reports and a profit warning from JPMorgan Chase.

Among today's economic news: Producer prices dropped 0.4 percent, as expected, in September but core PPI, which excludes volatile food and energy costs, shot up 0.4 percent, double the forecast. Retail sales tumbled 1.2 percent last month, the biggest decline in three years. Excluding autos, retail sales fell 0.6 percent, double of what was expected. The NY Fed reported it Empire State gauge of regional manufacturing activity tumbled to minus-24.62, more than double the forecast and the lowest reading since the index was created in 2001.

Today’s retail-sales numbers were an early warning sign of how bad it’s become for consumers – and it’s only going to get worse, said Art Cashin, director of floor operations at UBS.

“The impact on the economy will only really begin to dawn on people in several weeks and maybe a month or so,” Cashin told CNBC. “I think the consumer has actually finally hit the wall and we’re going to see it as we get near Christmas.”

Economists now expect we'll see a contraction in GDP in the third quarter, sooner than expected, as consumer spending accounts for two-thirds of economic activity.

These "early reports spell clear recession in the third quarter as GDP is set for a big drop," Robert Brusca, of Fact and Opinion Economics, wrote in a note to clients following the reports.

JPMorgan [JPM  Loading...      ()   ] shares wobbled after the bank reported its profit fell 84 percent, saddled with heavy writedowns from its acquisition last month of Washington Mutual. Earnings beat expectations but revenue missed.

Overall, banks took a beating this morning, with Dow components American Express [AXP  Loading...      ()   ] and Citigroup [C  Loading...      ()   ] off more than 9 percent and Genworth Financial [GNW  Loading...      ()   ] off more than 12 percent.

Coca-Cola [KO  Loading...      ()   ] was the lone gainer on the Dow after the soft-drink maker topped market expectations with a profit of 83 cents a share, excluding items.

(Track the Dow 30 stocks.)

Intel [INTC  Loading...      ()   ] advanced after the chip giant reported its profit grew 12 percent and said that revenue growth may be lighter, though the outlook wasn't as dire as previously feared.

Energy stocks took a hit as crude oil dropped to around $75 a barrel amid worries that a recession would squeeze energy demand.

European Union leaders meet in Brussels, just days after pledging 2.2 trillion euros ($3.02 trillion) to rescue European banks and jolt frozen money markets into life, aiming to press for an overhaul of the world's financial structures after Asia joined western bastions of capitalism in bailing out banks.

Asian markets fell towards the end of the session and although the Nikkei finished in the green, the other markets were down. European stock markets were deep in the red as fears that the bailouts were not enough to avert the crisis resurfaced.

Still to Come:

WEDNESDAY: Business inventories; weekly crude inventories; Fed Chairman Ben Bernanke speaks on the economy; Fed's beige book; Earnings from eBay
THURSDAY: CPI; weekly jobless claims; industrial production; Philly Fed survey; weekly natural-gas inventories; Earnings from Bank of New York Mellon, BB&T, Citigroup, CIT Group, Continental, Harley-Davidson, Hershey, Merrill Lynch, Nokia, PNC Bank, Southwest Air, United Technologies, AMD, Capital One, Google and IBM
FRIDAY: Housing starts; consumer sentiment; Earnings from Gannett, Honeywell and Sony Ericsson

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