The Dow Jones industrial average dipped nearly 2 percent, shedding 251 points to close at 12,573.57. The Standard & Poor’s 500 index was down more than 2.2 percent, ending at 1325.51. The tech-heavy Nasdaq composite fell 2.4 percent to close at 2,859.09.
Adding to the grim mood, the ratings agency Moody’s downgraded 15 major banks, citing concerns about the global economy.
The move could damage the profits of these banks in the short term and raise their borrowing costs. Perhaps more significantly, the decision by Moody’s raises uncertainty about the long-term health of the banking system.
Among the institutions downgraded were JPMorgan Chase, Goldman Sachs and Bank of America. “All of the banks affected by today’s action have significant exposure to the volatility and risk of outsize losses inherent to capital markets activities,” Greg Bauer, Moody’s managing director for global banking, said in a statement.
The gloomy outlook of investors was even more evident in commodity prices. Some have lost 20 percent of their value within two months, generally seen as bear-market territory. U.S. oil prices hit their lowest level in eight months. With stockpiles up and consumption projections down because of signs of the economic slowdown, oil closed at $78.20 a barrel.
The S&P spot index of 24 raw materials declined 2.8 percent Thursday, pushing the measure down a total of 22 percent since Feb. 24. Shares of Alcoa, the aluminum giant, were down 4.2 percent to $8.55 on Thursday, while oil company Chevron was down 3.5 percent to $100.02 a share.
“There is a growing consensus that global growth is slowing,” said James Cox, managing partner at Harris Financial Group in Richmond.
The market declines come as the European debt crisis continues to percolate and the rapid growth in emerging economies such as India and China slows. Meanwhile, economic conditions in the United States seem to be stagnating amid questions over whether the Federal Reserve and government policymakers have the will or the means to combat a serious downturn.
The Fed on Wednesday cut its growth estimates while extending its program to replace short-term bonds with longer-term debt. The modest move disappointed some investors who were looking for more aggressive action to promote economic growth.
“The markets are getting nervous, because the rally of the last week was based on stimulus hopes,” said Doug Roberts, chief investment strategist with Channel Capital Research. “The market was hoping there would be more specifics about what [future Fed action] would look like and what form it would take. People are talking about the Fed being out of bullets.”
Fed Chairman Ben S. Bernanke said this week that the Fed is prepared to take more aggressive action if the economy slows further.
Pessimism in the markets only grew after Goldman Sachs recommended Thursday that investors bet on the S&P 500 declining in the near term.