Stocks slumped to their worst levels in more than five years today as fears about the deteriorating economy intensified.
The Dow Jones industrials closed down 427 points, or 5.1%, to 7,997, its first close below 8,000 since March 31, 2003. The Standard & Poor 500 Index was down 53 points, or 6.1%, to 807, its worst close since March 12, 2003. In the process, the index fell below 819, its intraday low on Nov. 13 and a closely watched support level. The Nasdaq Composite dropped 97 points, or 6.5%, to 1,386, its first close below 1,400 since April 16, 2003. The Nasdaq-100 Index ($NDX.X) fell 68 points, or 5.9%, to 1,088, its lowest close since April 25, 2003.
Today's selloff reflected three forces at work:
A sharp decline in financial stocks, reflecting investor unhappiness that the Treasury Department has junked its plan to take over the troubled assets of a number of financial institutions.
Increasing worries that the recession will be much worse than anyone thought, with deflation problems growing. The Federal Reserve issued new projections today showing unemployment would jump well above 7% next year. Prior forecasts had seen jobless peaking at no more than 6%. The economy is "deteriorating faster than any time since the second quarter of 1980," former Fed governor Lyle Gramley told Bloomberg Television today.
Fears that inaction in Congress will lead to the collapse of General Motors (GM, news, msgs), Chrysler Group or both.
Citigroup (C, news, msgs) shares fell 23.4% to $6.40, its first close below $7 since May 1995.
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Eyeballing a long-term chart of the $SPX, the market is near the lows of 2002-2003. Before that the market last reached those levels in 1997. It was at about 200 in 1987, 400 in 1992, 800 in 1997, near 1600 in 2000, back to 800 in 2002, back up to 1600 in 2007, back down to 800 in 2008. That's a big decline in a short time.