U.S. stocks plunged early Wednesday but rebounded into positive territory in the afternoon, a day after suffering their worst daily decline in nearly a year, as investors grappled with signs that the economic situation in the United States and Europe might be deteriorating.
In volatile morning trading, losses to the Dow Jones industrial average, S&P 500 and the Nasdaq indexes fluctuated between between negative 0.5 percent and negative 1.5 percent. The last time the Dow — which has lost nearly 8 percent in the past nine sessions — had such a sustained losing streak was in February 1978. Energy, materials and consumer companies were among those leading the sell-off.
One of the big questions this week is the monthly U.S. jobs report, due to be released Friday. The Labor Department is expected to report that the labor market added 57,000 jobs in July, holding the unemployment rate steady at 9.2 percent. That would be an improvement from June when the labor market essentially stalled.
Two private-sector reports out Wednesday morning offered conflicting views of the jobs market.
Payroll firm ADP estimated that 114,000 jobs were added to private payrolls, which was slightly better than the 100,000 forecast by economists. But a separate report from Challenger, Gray & Christmas found that the number of planned layoffs at U.S. companies had jumped 60 percent in July to 66,414, the highest in 16 months.
Overnight in Asia stocks dropped sharply, but Europe stocks recovered somewhat from earlier falls as government leaders in Spain and Italy moved to calm nervous investors.
In the United States on Tuesday, the stock market losses were so great that they wiped out the year’s gains. Despite the seemingly positive news that President Obama signed the long-awaited agreement to lift the federal borrowing limit, the S&P 500 tumbled 2.6 percent — its seventh straight day of losses, making for its longest losing streak since October 2008. The Nasdaq tumbled 2.7 percent, while the Dow dropped 2.2 percent.
Analysts blamed the U.S. markets’ declines on rising worries over the health of the economy, which has come into renewed focus now that Washington has resolved its months-old fight over the country’s borrowing limit.
“I think the market has been surprised by the economic data, and I think they are becoming more concerned about the economic outlook,” said Paul Dales, U.S. economist at the Toronto forecasting firm Capital Economics.
The key data point giving markets concern Tuesday was a report from the Commerce Department showing that consumer spending declined 0.2 percent in June. The dismal reading was far worse than expected, marking the third straight economic indicator in as many business days to come in below expectations.
Monday’s manufacturing report indicated activity was barely above recession levels, while Friday’s report on gross domestic product showed that the economy grew at a snail’s pace of 1.3 percent in the second quarter.
And although many companies have reported strong profits, that hasn’t necessarily translated to more jobs. In fact, some of the world’s largest multinational corporations — including Cisco, Research in Motion, Bank of America and HSBC — have announced large layoffs in the United States in recent weeks.
But the consumer-spending report was particularly rattling, according to economist Joshua Shapiro of forecasting firm MFR, because consumer spending accounts for 70 percent of the GDP.
“If 70 percent of GDP is going nowhere, then it’s pretty easy to see the overall economy is anemic,” Shapiro said. “We are operating just above stall speed right now, not much above it.”
The economic fears are sending investors toward safe havens. Gold, long considered a safe store of value, climbed 1.4 percent to $1,641.90, according to Bloomberg data. And yields on the 10-year Treasury slid to 2.61, a new low for the year. A lower yield means investors are willing to accept a lesser return in exchange for the safety of holding government debt.
Investors also reflected economic fears in their trades Tuesday by sending the S&P below 1258, said Philip Roth, a chartered market technician with trading firm Miller Tabak in New York.
Roth said 1258 was a “support level” for the market, or a benchmark based on the index’s lows since March. Now that it’s been breached, Roth predicted, the market is likely to change direction and might slide an additional 10 to 15 percent.