Just when you thought the markets had stabilized, Thursday brought another rough and tumble day on Wall Street.
The Dow was in the gutter most of the day, plunging 500 points, more than 4 percent, in early trading. The index hovered around that number all day. The S&P and Nasdaq were both down almost 5 percent.
The tumble follows a poor day for world markets. ABC News reports the selloff comes in response to worries about the stability of European lenders and worries about a world economic slowdown:
Investment bank Morgan Stanley cut its global growth forecast for the year to 3.9 percent, down from a previous forecast of 4.2 percent. The bank cited an "insufficient" policy response to Europe's sovereign debt woes and the possibility of fiscal tightening that could make it harder for businesses to borrow.
Morgan Stanley, which also cut its China growth forecast for next year, wrote that the U.S. and Europe are "dangerously close to recession."
The report stated: "Recent policy errors, especially Europe's slow and insufficient response to the sovereign crisis and the drama around lifting the U.S. debt ceiling, have weighed down on financial markets and eroded business and consumer confidence."
The New York Times reports that with the bad economic news investors turned to U.S. Treasuries. The 10-year note, reports the Times, "fell to a record low."
Update at 4:52 p.m. ET. Markets Close:
At the closing bell, the Dow Jones Industrial index had fallen 419 points on the day, for a loss of 3.7 percent. It now stands at 10,991. The S&P 500 Index was even harder-hit, losing 4.5 percent.
Update at 4:06 p.m. ET. Pricing In A Recession:
The Los Angeles Times has a little more analysis on what's causing the market blues. Specifically it looks at a drop in factory activity in the U.S. Mid-Atlantic region. New numbers released by the Philadelphia Federal Reserve Bank's index of economic activity "plummeted to a negative 30.7 this month, down from a positive 3.2 in July and the lowest since a negative 30.8 reading in March 2009 — in the depths of the last recession."
In the words of the Times, that "stunned economists," and it showed in the market, as that number is considered a leading indicator.
Here's how one analyst put it to Reuters:
"The market is beginning to price in a recession. The Philadelphia Fed number was an absolute abomination," said Michael Hewson, market analyst at CMC Markets in London.
"Until we get some clear idea of how policy-makers are going to deal with euro-zone sovereign debt problems, it's not getting to get any better."
Update at 3:42 p.m. ET. Gold And Oil:
As we've learned throughout the past few weeks, when the market loses, gold gains. Today gold set a record. According to Bloomberg, "Gold futures rallied as much as 2.1 percent to $1,832 an ounce, while oil slid 6.8 percent."
Update at 1:03 p.m. ET. 'Fear Gauge' Spikes:
The market's "fear gauge" spiked during trading today. The Chicago Board Options Exchange Market Volatility Index, or VIX, was up as much as 35 percent, in the biggest one-day jump since early August.
The Wall Street Journal explains:
VIX measures the prices investors pay to use options as portfolio protection on the Standard & Poor's 500 stock-index, which fell 3.9% to 1147 in afternoon trade.
"We're are seeing strong indications of economic growth slowing," said Etai Friedman, head equity derivatives trading at MKM Partners. Concurrently higher VIX readings are a "sheer reflection of the volatile moves coming back—we're swinging 500 points again."
Update at 11:14 a.m. ET. European Worries:
The Wall Street Journal points out that the markets are still worried about Europe, despite the word from France and Germany that they wanted a true "economic government" for the European Union.
The Journal reports:
After a week that saw European stocks rally on the heels of short-selling bans on the continent, investors have taken a more cautious view after German and French leaders failed earlier this week to come up with concrete proposals to more meaningfully address sovereign debt problems.
"The press conference earlier this week was simply an announcement of a set of intentions. Now, the market is wondering: What are they actually going to do?" said Brett Hammond, senior economist at TIAA-CREF. "The U.S. has a relatively strong central bank and a strong fiscal authority. The European Union lacks both of these, and that all raises the question in a very pointed way about whether there should be stronger institutions. If you begin to see some action in that direction, that would be good for the markets."
Mr. Hammond said investors were looking for "some baby steps" in terms of actual policy coordination between Germany and France, as well as stronger signs of leadership from Europe's two strongest economies.