NEW YORK — Pessimism about a protracted economic downturn washed over the financial markets Thursday, sending stocks plunging and further tightening the credit markets.
Reports on declining factory orders and a seven-year high in jobless claims stoked fears that the government’s financial-rescue plan won’t ward off a recession, and the Dow Jones industrials skidded nearly 350 points.
Investors appeared to be settling in for a prolonged economic winter. The main concern is that the $700 billion bailout plan won’t be enough to stimulate growth, and economic reports delivered Thursday show that the U.S. continues to struggle.
The government said the number of people seeking unemployment benefits rose last week and that demand at the nation’s factories has fallen by the largest amount in nearly two years. The market is interpreting the Commerce Department report on factories as a sign that tight credit conditions are hitting manufacturers.
“The economy is what’s driving this weakness,” said Subodh Kumar, global investment strategist at Toronto-based Subodh Kumar & Associates. “I think now what’s going on is a focus on the economic weakness in a whole bunch of areas.”
He also said, “The next couple of days are going to be pretty intense politically” as Wall Street girds for another vote on the financial-bailout plan. The bill that passed the Senate late Wednesday will be sent to the House as soon as today. The latest version of the bill adds $100 billion in tax breaks for businesses and the middle class and raises the limit on federal deposit insurance to $250,000 from $100,000.
The stock market is a leading economic indicator of sorts, because investors tend to buy and sell based on where they believe the economy will be six months or more in the future. Thursday’s big drop points to a market increasingly resigned to further economic instability whether or not the bailout plan becomes law.
“There are a lot of people who think regardless of a bailout, there’s still this economic data and the horror stories out there,” said Todd Sala mone, director of trading at Schaeffer’s Investment Research. “Certainly, there’s a negative psychology.”
Investors might get another grim reading about the economy today when the Labor Department releases its September jobs report, one of the most closely watched indicators. The report is expected to show a loss of 100,000 jobs, according to a median estimate from economists. That would be the ninth straight month that the economy has lost jobs.
The Dow fell 348.22, or 3.22 percent, to 10,482.85. The blue chips plunged nearly 778 points Monday, logged a partial rebound Tuesday and finished modestly lower Wed nesday.
Broader stock indicators also fell sharply Thursday. The Standard & Poor’s 500 index fell 46.78, or 4.03 percent, to 1,114.28, and the Nasdaq composite index fell 92.68, or 4.48 percent, to 1,976.72.
