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Image: Wall Street Opens After Major Rebound On Previous Day
Mario Tama  /  Getty Images
Traders work on the floor of the New York Stock Exchange Wednesday. Stocks fell again as investors turned their attention back to the weak global economy, Europe.
msnbc.com news services
updated 8/10/2011 4:43:15 PM ET 2011-08-10T20:43:15
BREAKING NEWS

Back to reality for the stock market — and back down. Wall Street focused Wednesday on the bleak landscape ahead for the economy and sold off, wiping out the big gains from a day earlier and then some. The Dow Jones industrial average closed down 519 points.

The selling was intensified by worries about debt problems in Europe.

On Tuesday, the Federal Reserve said it planned to keep interest rates ultra-low for two more years. After some initial confusion, the stock market staged a huge comeback and had one of its best days.

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But the interest-rate news proved to be a distraction. The Fed made the pledge because it sees almost no chance that the economy will improve substantially by 2013, and when investors focused on that, they dumped stocks again.

"Now it gets back to the fundamentals," said Mark Lamkin, founder of Lamkin Wealth Management, which manages $215 million.

The Dow closed at 10,719.94, down 4.6 percent for the day. By points, it was the ninth-steepest decline for the market. The Dow has now lost more than 2,000 points in less than three weeks.

Wednesday was another day marked by big moves. The Dow was down more than 300 points within minutes of the opening bell. It recovered some of that loss, then drifted steadily lower in the last two hours.

The market has traded that way for two weeks, lurching up and down. The most extreme example was Tuesday, when the Dow swung more than 600 points in the one hour and 45 minutes after the Fed's statement.

The stomach-churning highs and lows are reminiscent of the fall of 2008, the depths of the financial crisis, when swings of 800 or even 1,000 points in day were not unheard of.

Computerized trading systems — programmed to analyze charts, capitalize on the tiniest changes in price and execute trades with no human intervention — are making the market rougher.

High-frequency trading programs make up about half of the trades in a normal market day but 70 percent or more on a volatile one. The programs pounce on stock changes to make just slivers of a penny but do it so often that it adds up to real dollars.

Other investors also use charts and market indicators to make trades based on market momentum. The bet is that if the market is rising, it will keep rising, and if it's falling, it will keep falling.

More investors are turning to this strategy because the sudden slowdown in the economy has left them unable to judge companies based on their fundamentals, like projected profits. The more people use a momentum strategy, the faster the decline.

The S&P 500 finished the day down 4.4 percent and the Nasdaq composite index down 4.1 percent.

Financial stocks led the market lower. Bank of America and Citigroup each lost more than 10 percent of their market value. Wall Street is worried because it doesn't know how badly American banks might be hurt by Europe's debt problems.

Investors fear Italy and Spain will be the next countries unable to repay their debts. The European financial system has been battered by fears about banks holding bonds of heavily indebted countries such as Greece and Portugal.

"It's the same game of Old Maid playing out in Europe that was played out here during the subprime mortgage crisis," said Quincy Krosby, an economist and market strategist with Prudential Financial.

The fear is that if European governments default on their bonds, it will hurt the European banks that own them. That could start a chain reaction that hurts the United States, because large U.S. banks own European bank debt.

Europe is also a big market for U.S. companies. It accounted for about 29 percent of foreign sales for S&P 500 companies last year.

Story: What is behind market swings? List is long

France came under pressure Wednesday amid concerns that it could become the next country to lose its top AAA rating. The cost of insuring against a default of French government debt hit a record, according to data from Markit.

In Asia, the concern is that higher inflation in China could lead to slower growth. China, Brazil and other less-developed countries have provided the strongest economic growth since the world began to recover from recession in 2009.

Gold rose above $1,800 per ounce for the first time as more money poured into investments considered safe at a volatile time for the financial markets. Gold closed up about $41 at $1,784. It first passed $1,600 only in late May.

The 10-year Treasury note, which has also served as a haven, also rose sharply. Its yield fell to 2.11 percent from 2.26 percent late Tuesday. It had reached a record low of 2.03 percent on Tuesday. A bond's yield falls when its price rises.

Quotes delayed 15+ min.

Investors have bought U.S. government debt even after S&P stripped the United States of its top credit rating, AAA, late last week.

Nearly three stocks fell for every one that rose on the New York Stock Exchange. Consolidated trading volume was heavier than usual, 8.3 billion shares. In July, average daily volume was less than half that. On Monday, it was 9.9 billion, the highest since September 2008.

Stocks have fallen so far that six companies have withdrawn plans this week to sell stock on U.S. markets for the first time, according to Dealogic. That brings the number of withdrawn initial public offerings, or IPOs, to 65 so far this year. That is the most through this point in the year since 2001.

Dow's worst days, by point loss

Date

Close

Point change

Percentage

Sept. 29, 2008

10365.45

-777.68

-6.98

Oct. 15, 2008

8577.91

-733.08

-7.87

Sept. 17, 2001

8920.7

-684.81

-7.13

Dec. 1, 2008

8149.09

-679.95

-7.70

Oct. 9, 2008

8579.19

-678.92

-7.33

Aug. 8, 2011

10809.85

-634.76

-5.55

April 12, 2000

10305.78

-617.78

-5.66

Oct. 27, 1997

7161.14

-554.26

-7.18

Aug. 10, 2011

10719.94

-519.83

-4.62

Oct. 22, 2008

8519.21

-514.45

-5.69


SOURCE: Source: Dow Jones Indexes

Dow's worst days, percentage loss

Day

Close

Points lost

Percentage

Oct. 19, 1987

1738.74

-508.00

-22.61

Oct. 28, 1929

260.64

-38.33

-12.82

Oct. 29, 1929

230.07

-30.57

-11.73

Nov. 6, 1929

232.13

-25.55

-9.92

Dec. 18, 1899

58.27

-5.57

-8.72

Aug. 12, 1932

63.11

-5.79

-8.40

March 14, 1907

76.23

-6.89

-8.29

Oct. 26, 1987

1793.93

-156.83

-8.04

Oct. 15, 2008

8577.91

-733.08

-7.87

July 21, 1933

88.71

-7.55

-7.84


SOURCE: Source: Dow Jones Indexes

The Associated Press contributed to this report.

Video: Stock market sell-off continues

  1. Closed captioning of: Stock market sell-off continues

    >> down. just about 15 minutes away from the closing bell on wall street , and it's been a doozy of a day. stocks down sharply this afternoon, eroding tuesday's gains and making for one heck of a roller coaster for investors this week. let's bring in msnbc contributor jared bernstein, former chief economist and advisor to vice president biden with us from washington. what's behind the fall today, and how much longer is this whiplash going to last?

    >> well, i think if you think about the economy as kind of a sick patient right now and dr. ben bernanke as the doctor, the big question yesterday was will the doctor prescribe the medicine -- will the doctor prescribe the medicine we need in the long term, and yesterday the feds said they would. they said they would keep interest rates low for another couple of years. and the market was elated. then, you wake up the next day, and the patient says oh, my god, i'm going to need medicine for another two years, so it -- yesterday you had a 400-plus point gain and today folks are reflecting back again at the underlying economic weakness, of course, both here and particularly in the banks of europe where there's worries about contagion to larger countries.

    >> we saw a new poll today showing almost half of americans think the worst is yet to come for this economy. how much is consumer confidence or the lack of it fueling this cycle?

    >> it's definitely part of the problem, but it itself is, of course, a function of what matters most to consumers or basically people which is their jobs, their incomes, their paychecks, their living standards. what really doesn't matter a lot to people is a debt ceiling debate. in fact, the budget deficit is a far second or third or fourth to people's major concerns versus the jobs deficit, so as long as washington was kind of in this -- in this dysfunctional self-inflicted wound mode for a couple of months, that hurt consumer confidence because policy-makers weren't working on jobs. that's what matters most to people right now.

    >> jared , is there anything to be done immediately to stop the perilous swings? how would you advise the administration right now?

    >> i would say the best -- first of all, i don't think there's any immediate band-aid. could you have the fed come out and say we're going to do something more than we said, but that's so unlikely. i don't think the administration can do anything except the following, which i think will help -- get out there with a single message to the american people . i know we've been talking past you for the past few months with all the debt ceiling, self-inflicted wound extremism on the conservative side, i know that, but i know what matters to you, it's your jobs, your income, and the opportunities in the market, we're going to turn back to that with a laser-like focus. here are the ideas. congress may block those ideas, in fact i even say it's likely, but i think to see the president fighting for those ideas would help.

    >> jared bernstein, thank you.

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