Traders work on the floor of the New York Stock Exchange, July 31, 2012.BRENDAN MCDERMID/Reuters
Stocks took another beating on Wednesday, pushing the U.S. benchmark index toward a four-month low and feeding anxieties over what's driving the volatility and how long it will persist.
The market moves extended a weak stretch for stocks that began in September, but one that has turned particularly rough after U.S. presidential elections last week.
The Dow Jones industrial average closed at 12,570.95, down 185.23 points or 1.5 per cent. The broader S&P 500 closed at 1355.49, down 19.04 points or 1.4 per cent. In Canada, the S&P/TSX composite index closed at 11,929.79, down 204.87 points or 1.7 per cent.
Stocks were also hit overseas, where the U.K.'s FTSE 100 fell 1.1 per cent and Germany's DAX index fell 0.9 per cent.
The damage over the past two months is starting to add up: The S&P 500 has fallen 7.5 per cent overall, taking it to its lowest level since the end of July and marking its most severe drubbing since the spring.
On Wednesday, markets appeared to be reacting to a batch of gloomy news that pointed – yet again – to a dismal global economy.
U.S. retail sales in September fell 0.3 per cent, marking the first reversal in four months, raising questions about whether the economy is weakening.
Thursday morning brings the weekly report on U.S. jobless claims, which is seen as a key indication of where employment is headed.
The euro zone's industrial production in September fell 2.5 per cent from August, considerably worse than the 2 per cent retreat anticipated by economists and suggesting the region's economy is in even worse shape than expected.
Meanwhile, the so-called fiscal cliff – a horrific scenario of automatic tax increases and spending cuts that the White House and Congress are frantically trying to avoid – continues to raise levels of uncertainty among investors.
Expect no help from the Federal Reserve: Richard Fisher, president of the Dallas Federal Reserve, said that the central bank would not act as a backstop if disagreements among politicians sends the United States off the cliff.
While his comments were not unexpected – Fed chairman Ben Bernanke has made similar remarks recently – they underlined two unpleasant themes: The central bank can only do so much to support the U.S. economy and some thinkers believe it is possible for the U.S. to over the cliff.
As is usual with recent market setbacks, investors were most eager to flee economically sensitive stocks. Within the S&P 500, industrials, financials, materials and consumer discretionary stocks were the worst hit.
However, even defensive areas were hit, with telecom stocks, utilities and consumer staples ending the day lower.
For safety, investors fled to U.S. government bonds, driving yields lower. The yield on the 10-year U.S. Treasury bond fell below 1.6 per cent, or its lowest level in more than two months.
The CBOE Volatility index, or VIX, rose 7.6 per cent, to 17.9. However, the so-called fear gauge remains relatively low and well off peaks seen during other tumultuous times for the stock market and global economy.
Key commodity prices saw some gains. Gold rose to $1,730.10 (U.S.) an ounce, up nearly $5.30. Crude oil rose to $86.32 a barrel, up 94 cents.
To be sure, stocks have endured plenty of other setbacks since the stock market began to recover from a severe bear market that followed the financial crisis of 2008.
Each time, stocks have bounced back to new highs. As recently as September, the S&P 500 hit its highest level in nearly five years after overcoming a 19.4 per cent decline between April and October 2011.
David Berman