The stock market recovered late yesterday from an early sell-off that was prompted by a business group's report that consumer confidence had plunged to its lowest level in almost nine years.
The Dow Jones industrial average closed essentially unchanged, up 0.90 at 8368.94, while the broader-based Standard & Poor's 500-stock index fell 8.08, or 0.9 percent, to 882.15. The technology-heavy Nasdaq composite index dropped 1.2 percent, closing down 15.29 at 1300.54.
The Dow lost almost 200 points before noon as investors worried that falling consumer confidence would lead to a further slowdown in consumer spending during the crucial holiday shopping season, or even another recession following the one last year. But less than two hours before the market's closing bell, investors started buying again.
"We were looking for a decline in confidence, but not this big a decline, so a lot of investors were scared initially by the specter of a double-dip recession," said Wayne M. Ayers, chief economist at FleetBoston Financial. "But in the end, as has been the pattern lately, the market bounced back despite the bad news."
The consumer confidence index compiled by the Conference Board, a nonprofit business group based in New York City, fell to 79.4 for the first three weeks in October, from 93.7 in September, and is now at its lowest level since November 1993. The index, which is based on a survey of 5,000 households, has fallen for five consecutive months.
"A weak labor market, the threat of military action in Iraq and a prolonged decline in the financial markets" were the main factors behind the drop, said Lynn Franco, director of the Conference Board's Consumer Research Center.
In assessing their present situation, 27.6 percent of consumers rated the current business climate as "bad," up from 23.8 percent a month ago. Consumers' outlook for the next six months, which had improved in September, worsened this month, as more than 14 percent of those surveyed said they expect business conditions to deteriorate, compared with 9.7 percent the last time the survey was conducted.
Measures of public opinion about the job market and of consumers' future income expectations also took a significantly more negative turn this month, after a string of recent announcements that disclosed the prospect of further layoffs at companies such as Lucent Technologies and Sun Microsystems.
But several market analysts said that consumer confidence surveys are at best an imperfect indicator of consumer behavior and noted that people have continued to spend in the past despite dismal confidence numbers.
"What counts is not just how people feel but what they do," Ayers said.
The Conference Board survey actually reinforced some analysts' opinion that the stock market has been recovering since Oct. 9, when the Dow reached its lowest level in five years.
"To demonstrate that the market hit a low, you need the consumer to be sick and tired of everything. You need a real throw-in-the-towel kind of sentiment," said Michael K. Farr, president and majority owner of the money-management firm Farr, Miller & Washington.
"This was that kind of number, and it's the best indication yet that while we may see continued weakness, we won't see a lower bottom than we saw a few weeks ago," he added.
Contributing to yesterday's decline on the S&P 500 was an announcement from BP PLC, Europe's largest oil company, which lowered production forecasts, causing investors to spurn energy stocks.
The late-day rebound was led in part by an announcement from Procter & Gamble that its third-quarter earnings had beaten analysts' expectations. The stock finished up almost 4 percent yesterday. Investors will be paying close attention to a pair of announcements in coming days.
On Friday, the Labor Department releases job figures for October, which are expected to show an increase in the U.S. unemployment rate from last month's 5.6 percent level.
And on Nov. 6, Federal Reserve officials will hold a much-anticipated policy meeting. The Fed appears likely to cut short-term interest rates before the end of the year to help boost an economy it called "sluggish" in a report last week. The Conference Board's report added to growing speculation that the officials may do so as soon as the next meeting, although some may prefer to wait until their meeting in December.
* The New York Stock Exchange composite index fell 4.08, to 471.49; the American Stock Exchange index fell 1.64, to 805.65; and the Russell 2000 index of smaller-company stocks fell 0.38, to 368.63.
* Declining issues outnumbered advancing ones by 4 to 3 on the NYSE, where trading volume rose to 1.55 billion shares, from 1.35 billion on Monday. On the Nasdaq, decliners outnumbered advancers by 6 to 5 and volume totaled 1.54 billion, up from 1.43 billion.
* The price of the Treasury's 10-year note rose $12.19 per $1,000 invested, and its yield fell to 3.94 percent, from 4.09 percent on Monday.
* The dollar fell against the Japanese yen and the euro. In late New York trading, a dollar bought 122.68 yen, down from 123.64 late Monday, and a euro bought 98.52 cents, up from 98.44.
* Light, sweet crude oil for December delivery settled at $26.86 a barrel, down 43 cents, on the New York Mercantile Exchange.
* Gold for current delivery rose to $317.70 a troy ounce, from $315.20 on Monday, on the New York Mercantile Exchange's Commodity Exchange.