Meanwhile, Wall Street also had to contend with concerns about a slowing economy. A report from the Commerce Department indicated consumers scaled back their spending in September as worries mounted about a worsening housing market and further credit market turmoil. And a trade group reported that manufacturing in the U.S. grew in October at the weakest pace since March.
"Feeling the Pain"
"Wall Street is in love with the idea of a rate cut, and realized that the Fed said inflation is still a concern--that lowered the chances of a cut in December," said Ryan Detrick, a senior technical strategist with Schaeffer's Investment Research. "We're now feeling the pain now that investors have slept on it, and figured out what they said."
Christopher Cordaro, chief investment officer at RegentAtlantic Capital, said Wall Street remains anxious about the possibility of recession. He also believes the market is devoid of enough positive news "to have any type of sustained rally."
Investors were unswayed when the Fed pumped $41 billion into the U.S. financial system, one of its largest cash infusions since the credit crisis began in the summer. This increases the amount of money banks have to lend, and helps improve liquidity. In the past, such an action helped soothe the market, but that was not the case Thursday.
With the market growing pessimistic about the economy, the Labor Department's report on October jobs creation, scheduled to be released Friday morning, will be taking on even more importance than it usually has. The data is expected to show unemployment remained steady in October, with payroll growth of 85,000 new jobs, compared with 110,000 in September.
Analyst downgrades for Citigroup and Bank of America led Thursday's huge drop that infected nearly every sector, while disappointing earnings from ExxonMobil and Sprint compounded Wall Street's problems. Credit Suisse also reported that its third-quarter earnings were wiped out by subprime writedowns.
With two camps battling over whether the recent spate of subprime writedowns indicated the worst was over or yet to come, investors largely took the pessimistic view. Citi shares hit their lowest point in five years while Sprint and Bank of America both reached 12-month lows.
Many were simply still waiting to see what other banks affected by the credit crunch would disclose after giants like Merrill Lynch and Countrywide Financial recently disclosed massive writedowns from subprime losses.
"Not everyone has been as bold as Merrill Lynch," said Chris Orndorf, managing principal and head of equity at Los Angeles-based money manager Payden & Rygel. "I don't think other commercial banks and investment banks have been equally willing to face reality. Until you get to that point financials are going to lag.
"People don't have confidence in the numbers they're seeing, and when they don't have confidence they don't invest."
The onslaught of selling triggered trading curbs early in the day.
The curbs, instituted at 9:38 a.m. after the NYSE Composite Index had tumbled 212 points, or 2 percent, at 10,099, require that all program selling of S&P 500 stocks must be on an up-tick.