Stocks ended the first week of the new year with steep losses as Friday's weak employment report spurred fears of a looming recession.
The market tumbled from the opening bell after the government reported job growth was far below expectations in December and the unemployment rate surged to 5%, its highest point in more than two years.
Technology shares were the biggest losers of the day, sending the Nasdaq plunging more than 4%. The Dow Jones Industrial Average dropped 2%, with financials weighing on the bluechips and home builders and retail a significant drag on the broader market. The S&P 500 skidded 2.46%.
For the week, the Dow tumbled 4.2%, the Nasdaq 6.35% and the S&P 500l 4.5%
The Dow is now down more than 9% from its all-time high of 14,164.53 last October and down 3% already in 2008, but up 1 percent from its most recent low of 12,743.44 in late November.
"The idea that the economy is slowing is one that is accepted by everyone including the Fed, but the extent of the slowdown has shocked everyone a little bit," said Richard Sparks, senior equities analyst at Schaeffer's Investment Research in Cincinnati. "I think the market kind of finds itself in the situation where the worst-case scenario, stagflation, is actually being considered as a possibility by more market participants."
Analysts figured stocks to fall after the release of the employment numbers, but the extent seemed to shock everyone.
"I certainly expected the reaction that we got in terms of direction with respect to the weaker (employment) number signifying a slowdown in hiring, but I think the magnitude of the decline shows how much fear there is regarding a potential recession," Sparks said.
Elsewhere, oileased in its charge towards $100 a barrel, with the price for US light, sweet crude dropping below $98 as profit-takers took over.
The bloodshed spread through the markets, with the Russell 2000 small-cap and Dow transportation indexes both hitting 52-week lows.
Amid the brutal trading day, the Federal Reserve said it will increase the amount of money by 50 percent it is making available to banks through a new auction process meant to combat the severe credit squeeze. The auctions are intended to inject liquidity into the markets but have shown little immediate impact on stocks.
Treasurys rose, sending short-dated yields to three-year lows, as grim jobs data prompted investors to increase bets on Federal Reserve interest rate cuts.
Moving the Market
Shares of Intel and other chipmakers, including Micrel, were having a rough day after JPMorgan issued a downgrade of the Dow component, which followed a separate downgrade from Bank of America earlier in the week. Intel was the highest percentage loser on the Dow.
Financials also took a beating, led by student loan giant Sallie Mae, which plunged after a Citigroup analyst cut his price target for the troubled company, whose shares have fallen 55 percent in the last month.
In corporate news, shares of apparel retailer Talbots were under pressure after the company said it will exit its Talbots Kids and Mens linesand close 78 stores by September.
The company will cut about 800 full- and part-time jobs, about 5 percent of its work force, and record a pretax charge of $34 million to $42 million, or 40 cents to 49 cents a share, in fiscal 2008.
Also in retail, Bed, Bath & Beyond tripped after the home furnishings and houseware store lowered its fourth-quarter outlookdue to housing weakness and a slowdown in consumer spending. Shares across the sector were broadly lower.
Solar companies were among the biggest gainers of the day, led by Akeena Solar , which rose sharply as investors wary of soaring oil prices looked to put their money into alternative energy.
In earnings, Wendy's International said that sales at its company-owned hamburger restaurants open at least 15 months fell 0.8 percent in the fourth quarter, compared with a 3.1 percent increase a year earlier. Sandwich chain Sonic rose after its earnings fell less than anticipated.