U.S. stocks dropped sharply today as weak reports on corporate performance and new data on consumer spending soured investors.
The Federal Reserve Board, which yesterday buoyed the markets when it announced a cut in its key interest rate, moved this afternoon to steady the system with an infusion of $41 billion into the economy.
The Dow Jones industrial average closed down more than 362 points to 13,568, a decline of 2.6 percent. The Nasdaq lost 62 points, 2.25 percent, to end the day at 2,795, and the Standard & Poor's 500 index was off 41 points at 1,508, also a 2.6 percent loss.
Renewed credit market jitters hit financial shares, with an analyst report from CIBC World Markets downgrading the outlook for financial giant Citigroup. The report suggested the company may need to sell assets to raise cash. Shares were down $2.85, around 7 percent.
That news also helped push other financial stocks, including Bank of America, down for the day.
In addition, oil giant Exxon Mobil Corp. reported lower-than-expected profits. The company earned $9.4 billion between July and October, compared with $10.4 billion in the same period a year ago. That's still a substantial amount of money, but the company reported that its profit margin had been trimmed by higher crude oil costs that had not yet been translated into higher prices for gasoline and other products. Its stock was down $3.49, or about 3.8 percent.
Also initially undercutting confidence this morning was an overnight spike in the price of oil triggered by a report that U.S. petroleum reserves had fallen for the second week in a row. The price for light, sweet crude topped $96 a barrel in overnight trading, as investors surveyed data from the U.S. Energy Information Administration showing that U.S. oil supplies fell by 3.9 million barrels last week.
Prices began receding when trading opened this morning on the New York Mercantile Exchange, and by the end of trading, the price of crude had dropped $1.04 to $93.49.
Still, the negative mood found plenty of reinforcement.
New Commerce Department data showed that consumer spending -- a mainstay of the U.S. economy -- grew 0.3 percent in September, slower than expected. That helped to push down stock prices for major retailers, including Target and Wal-Mart. And an index of the U.S. manufacturing industry showed that activity at plants and factories slowed in October.
The move today by the Federal Reserve to inject more cash into the financial system was part of the board's efforts to keep the markets working smoothly. The Associated Press reported that a spokesman for the Federal Reserve Bank of New York said it was the largest single day of operations since $50.35 billion was released to steady the markets on Sept. 19, 2001, after the terrorist strikes.
The downturn on Wall Street followed a much-anticipated quarter-point cut in interest rates announced by the Federal Reserve yesterday, which helped push the Dow up 137 points.
The short-lived rally reemphasized how volatile markets remain, analysts said. Financial companies are still processing the degree to which problems in the mortgage industry and credit markets will hurt their bottom line, oil and commodity prices are raising inflation concerns, and there's anticipation that U.S. economic growth will slow at the end of the year.
A report on the gross domestic product yesterday estimated that the U.S. economy maintained its momentum in the third quarter of the year, growing at a faster-than-expected 3.9 percent annualized rate.
That estimate, however, was based on a level of consumer spending that appears to be slowing, said Nigel Gault, chief U.S. economist with the Global Insight consulting firm.
Gault said he expected that a consumer pullback "will slow overall GDP growth to less than 2 percent" as the year ends.
"It was consumer spending and foreign economic growth that largely fueled U.S. economic activity this year," said Bernard Baumohl, managing director of the Economic Outlook Group. "If Americans start to cut back on spending and foreign economic growth slows before the housing sector has chance to recover, then this expansion could well be in jeopardy."
Art Hogan, chief market analyst at Jefferies & Co., said that the day after a Fed move on interest rates can often be turbulent.
"Oftentimes, the day after is a choppy ride because the full extent of the news settles in on us," he said. "We were very excited yesterday about the fact that the Fed cut. That's what we wanted and expected. We celebrated that. But as we sort of wake up today and say, 'Wait a minute, they took the punch bowl away' . . . that takes away the guarantee that we had in this market that they're going to continue to cut" interest rates again.
"Layer on top of that the fact that several large corporations like Citi were downgraded, Exxon Mobil had profit-margin issues, Merrill Lynch continuing to look for someone to run the company, the tone of corporate news is more negative than positive today. Coupled with all of that, oil continues to press toward $100," Hogan said. "At some point, we have to wake up and realize that that's not good for corporate earnings."