NEW YORK (AP) — Volatility returned to Wall Street Wednesday after a disappointing retail sales report reminded investors that country is either in a recession or moving toward one. The Dow Jones industrials dropped more than 300 points, giving back a chunk of their huge 936-point advance from Monday.
The government's report that retail sales plunged in September by 1.2 percent — almost double the 0.7 percent drop analysts had expected — made it clear that consumers are unlikely to reach for their wallets in the coming months as they worry about a shaky economy.
The Commerce Department report is sobering because consumer spending accounts for more than two-thirds of U.S. economic activity. The reading comes as Wall Street is beginning to refocus its attention on the faltering economy following stepped up government efforts to revive the stagnant credit markets.
"Even though the banking sector may be returning to normal, the economy still isn't. The economy continues to face a host of other problems," said Doug Roberts, chief investment strategist at ChannelCapitalResearch.com. "We're in for a tough ride."
Analysts have warned that the market will see continued volatility as it tries to recover from the devastating losses of the last month, including the nearly 2,400-point plunge in the Dow over eight sessions. Such turbulence is typical after a huge decline, but the market's uneasiness about the economy will also be reflected in the gyrations expected in the weeks and months ahead.
Doubts about the economy were already surfacing in Tuesday's session, when investors halted an early rally and began collecting profits from stocks' big Monday advance. Wednesday's data confirmed the market's fears that the economy is likely to be remain weak for some time, and that corporate profits are likely to suffer.
Investors were digesting the first wave of third-quarter earnings reports, including those of two banks caught up in the mortgage mess. JPMorgan Chase & Co. reported an 84 percent decline in its third-quarter profit, offering further evidence of how the financial crisis is slamming the economy.
JPMorgan, which bought the assets of failed bank Washington Mutual Inc. late last month as a result of the mortgage bust, said the profit drop reflected losses on bad mortgage investments, leveraged loans and home loans. The quarter's performance beat expectations, however.
Wells Fargo & Co., meanwhile, reported that its third-quarter profit fell 23 percent after it took hits on investments in troubled finance companies and increased its credit reserves. Still, results topped expectations. Wells Fargo is in the process of acquiring stricken Wachovia Corp; Wells Fargo and JPMorgan, despite their own troubles, are among the nation's strongest banks.
In midmorning trading, the Dow Jones industrial average fell 327.43, or 3.52 percent, to 8,983.56.
Broader stock indicators also declined. The Standard & Poor's 500 index fell 42.75, or 4.28 percent, to 955.26, and the Nasdaq composite index fell 52.88, or 2.97 percent, to 1,726.13.
If Wednesday's decline holds, the Dow will, after a one-day break, resume a string of triple-digit losses or gains. On Tuesday, after swinging erratically throughout the session, the blue-chip index closed the day down a moderate 76 points.
The stock market is trying to recover from last week's terrible run, which erased about $2.4 trillion in shareholder wealth and brought the Dow to its lowest level since April 2003. The tumble occurred amid a seize-up in lending stemming from a lack of trust among institutions in response to the bankruptcy of investment bank Lehman Brothers Holdings Inc. and the failure of Washington Mutual Inc., which had been the nation's largest thrift.
The credit markets have been showing tentative signs of recovery, though they remain strained, and demand for safe assets remains high. The three-month Treasury bill on Wednesday was yielding 0.21 percent, down from 0.30 percent on Tuesday. When yields are low, it shows that demand is so high that investors are willing to earn meager returns as long as their principal is preserved.
In other economic data Wednesday, the Labor Department said the producer price index, which measures inflation pressures before they reach the consumer, fell 0.4 percent in September, driven by lower energy costs. That decline matched analysts' expectations.
Late Tuesday, Intel Corp., the world's largest maker of PC microprocessors, beat analysts' estimates and posted a third-quarter profit increase of 12 percent. Intel rose 33 cents, or 2.1 percent, to $16.26.
JPMorgan's results topped forecasts but the problems seen in all types of loans, not just home equity debt but also prime mortgages and credit cards, is worrisome for the banking industry. The stock rose 26 cents to $40.97.
Wells Fargo rose 95 cents, or 2.8 percent, to $34.47 after its report.
Light, sweet crude fell $3.07 to $75.56 a barrel on the New York Mercantile Exchange. The dollar fell against other major currencies.
Declining issues outnumbered advancers by about 8 to 1 on the New York Stock Exchange, where volume came to 311.9 million shares.
The Russell 2000 index of smaller companies fell 16.94, or 3.05 percent, to 537.71.
In Asian trading, Hong Kong's Hang Seng Index lost nearly 5 percent after rising more than 13 percent the previous two days. Markets in Australia, South Korea, China, India and Singapore also sank. Japan's Nikkei 225 index, however, ended up 1.1 percent after soaring 14 percent in the previous session.
In afternoon trading in Europe, Britain's FTSE 100 fell 5.17 percent, Germany's DAX index fell 5.17 percent, and France's CAC-40 fell 5.07 percent.
