This story was updated at 6:30 p.m. on Thursday.
U.S. stocks plunged Thursday, with major indexes all losing more than 3 percent as investors worried about the global economic outlook and the ability of central bankers and political leaders to stabilize teetering economies.
The Dow Jones Industrial Average plummeted more than 300 points within minutes of the opening bell and by late afternoon had skidded to a loss of 528 points before rebounding to close down 391.01 points, or 3.51 percent, at 10,733.83. All 30 stocks in the index were in the red. The Standard & Poor’s 500-stock index, meanwhile, finished the day off 37.20 points, or 3.19 percent.
Those drops followed a steep selloff in overseas markets. Major European indexes -- including Britain’s FTSE 100, Germany’s
DAX, and France’s CAC 40 -- all dropped more than 4.5 percent. Hong
Kong’s Hang Seng index was nearly 5 percent lower, while Tokyo’s Nikkei
index was down more than 2 percent.
The U.S. losses continued a slide that gathered momentum Wednesday afternoon after the Federal Reserve announced that it would launch a program dubbed “Operation Twist.” That program will see the central bank move $400 billion from short-term to long-term Treasuries in an effort to lower long-term interest rates.
"The sharp decline in the Dow Jones Industrial Average today is clearly a reaction to downbeat news from the Fed and the Labor Department," Jamie Farmer, executive director of Dow Jones Indexes, said in a statement after the closing bell.
The Fed’s announcement was expected, but once it was announced, investors were faced with the stark reality that, while political leaders are unable to agree on fiscal policies that could help, the monetary moves by the nation’s central bankers can’t provide the added jolt the economy needs. “Economy already in recession,” tweeted economist Nouriel “Dr. Doom” Roubini. “Whatever the Fed does now is too little too late.”
Other economists disagreed with the notion that the U.S. has entered a double-dip recession, but offered similar conclusions about the Fed action. “These measures can’t make the economy worse, but neither, we think, will they make things much better,” Ian Sheperdson, chief U.S. economist at High Frequency Economics, wrote in a note to clients Thursday. “Right now the economy is expanding, but a fiscal kick is much more likely to keep it growing than fiddling with the Fed’s balance sheet.”
Moving to buy before the Fed does, and spooked by dour economic readings, investors pushed yields on the 10-year Treasuries down to a record low of 1.71 percent.
The Federal Open Market Committee itself offered a reminder on Wednesday of just how gloomy the global economic picture remains, noting “significant downside” to its economic forecast. “Hidden behind the Greek drama over the past few weeks and unveiled again yesterday with the FOMC statement and action, the unfolding global economic slowdown is back to front and center,” Miller Tabak strategist Peter Boockvar wrote in a Thursday morning note to clients.
Those global economic fears were exacerbated by data showing slowdowns in business activity in Europe and China. A preliminary reading on China’s manufacturing for September indicated a slight decline, and a third straight month of contraction. And as Europe’s sovereign debt crisis spirals, new data out Thursday suggested that the uncertainty surrounding the crisis may be crippling Euro zone economies, leaving them on the cusp of another recession.
Consumer confidence in Euro zone countries dropped to a two-year low this month, according to the European Commission. And a gauge of services and manufacturing activity in the Euro zone fell more sharply than economists had expected and indicated a contraction for the first time since July 2009. "The current economic situation is entering a dangerous phase," International Monetary Fund Managing Director Christine Lagarde warned Thursday, adding that the heavy debt loads of major economies "could actually suffocate the recovery."