Stocks tumbled sharply across the board Thursday after a gloomy outlook from the Federal Reserve and weak manufacturing reports from Europe and China raised further concerns the global economy could sink back into recession.
The S&P 500 and the Nasdaq also declined sharply. The CBOE Volatility Index, widely considered the best gauge of fear in the market, soared near 41.
All 10 S&P sectors fell at the open, led by materials and energy.
“The near-term trading range for the S&P at 1,100 to 1,220 has just been a consolidation pattern, which is likely to see further downside below 1,100,” said Michael Sheldon, chief market strategist at RDM Financial Group. “If we break below that level on heavy volume, then we could be in for further downside near 1,020—that would represent a 50-percent retracement of the bull market from Mar. 2009.”
The Fed announced it would launch a new $400 billion program in a move to rebalance its $2.87 trillion portfolio—a version of the widely expected Operation Twist—by selling shorter-term notes and using those funds to purchase longer-dated Treasurys.
Despite the latest attempt to kickstart growth that slowed to a crawl over the first half of the year, the global markets were unimpressed.
Soros: US Is Already in Double-Dip Recession
“You have to be a little bit schizo here—there’s what the Fed’s doing and there’s the overwhelming news coming out of Europe and those two things are playing against each other,” Kevin Ferry of TheContrarianCorner.com told CNBC.
“Look at the currency market, they’re tighter to day than they were prior to the Fed’s activities and the Fed’s motions yesterday were aggressive," continued Ferry. "So there’s been a downtick in the mood here and it’s important to see how this plays out.”
Adding to concerns of another global recession, China's manufacturing sector contracted for a third straight month in September. The world's second-largest economy is especially vulnerable to fading demand from the U.S. and Europe, its biggest export markets.
In addition, business activity in France and Germany grew at its weakest pace in more than two years in September and new orders fell for a third month, underscoring a loss of momentum in Europe's largest economies.
Oil prices plunged with U.S. light, sweet crude falling near $82 a barrel and London Brent crude sliding below $107. Gold prices tumbled almost $50 to trade near $1,765 an ounce, while copper hit a one-year low.
European shares plunged across the board with the FTSE, DAX and CAC all down more than 4 percent.
On the economic front, new claims for jobless benefits fell 9,000 to 423,000 last week, according to the Laboar Department. Economists had expected claims to fall to 420,000 last week, according to Reuters.
FedEx [FDX 65.11 -7.39 (-10.19%) ] slipped after the economic bellwether said it is trimming its earnings expectations for the fiscal year due to slowing global economic growth.
Meanwhile, Discover Financial Services [DFS 25.47 0.13 (+0.51%) ] posted a better-than-expected profit as customers spent more on their credit cards and delinquencies declined. However, the credit-card provider's shares still fell along with the broader market.
On the M&A front, United Technologies [UTX 69.965 -4.905 (-6.55%) ] is acquiring aircraft components maker Goodrich [GR 120.49 11.00 (+10.05%) ] in a $16.5 billion cash deal in what would be its largest deal since 2000. Goodrich shares jumped to lead the S&P 500 gainers.
Meanwhile in an abrupt shift in strategy, the United Auto Workers union has focused its contract negotiations on Ford Motor Company [F 9.87 -0.10 (-1%) ] after talks stalled with Chrysler.
And Exxon Mobil [XOM 69.96 -2.01 (-2.79%) ] might receive much less compensation than the U.S. oil giant wanted from Venezuela for the nationalization of its assets in 2007 after the energy minister proposed a figure of $1 billion, according to Reuters.
The Federal Housing Finance Agency house price index for July will also be published at 10 am ET. The previous month’s index showed house prices increasing by 0.9 percent.
Late on Wednesday Greece adopted yet more austerity measures to secure a bailout installment crucial to avoid running out of money next month, as the IMF warned that Europe's sovereign debt crisis risks tearing a giant hole in banks' capital.
The IMF also said the crisis had increased European banks' exposure by 300 billion euros, and they need to recapitalize to ensure they can weather potential losses.
