America's stock wealth withered anew Thursday, with investors trampling the shares of venerable corporations from Morgan Stanley to Ford in a stampede that left General Motors' stock at 1950 levels and drove major stock indexes an astonishing 40 percent or more below their peaks a year ago.
What started out as a relatively quiet day of trading ended with a ghastly 679-point plunge in the Dow Jones Industrial Average to below 9,000 barely a week after dipping below 10,000, erasing another $900 billion of wealth from retirement and savings accounts. Capping an already horrendous month for the market, it was the second-largest point drop in history and the second day in the past two weeks that stocks lost more than 7 percent of their value.
Previously strong sectors like energy and technology succumbed to the panic that has shattered financial and consumer stocks, while short-sellers returned with a vengeance after a three-week hiatus to take down banking, insurance and finance stocks that had been temporarily protected by government order.
The turmoil of the past month has driven major stock gauges well below the losses typically seen during modern bear markets, with the market now lurching into a manic state of a kind not seen since 1937, during the Great Depression.
The irony was that it happened on a day when credit markets that had been frozen for a month were showing scattered signs of life in a breakthrough for what many analysts consider the root cause of the financial crisis. Some investors were retreating from safe havens like gold and Treasury bills and tentatively dipping their toes back into abandoned markets like commercial paper and municipal bonds.
But stock investors ignored these improvements, as well as a solid earnings report from IBM, and instead focused on the declining fortunes of icons like Ford and GM and the elevated levels of key bank lending rates, which sent them running for the exits.
"The news is grim, no doubt," said Asha G. Bangalore, an economist at Northern Trust Co., noting that stocks worldwide have lost nearly half their value since peaking in October a year ago.
The carnage continued in Asian markets early Friday: the Tokyo Nikkei-22 index lost 10.64 percent in its morning session; Hong Kong's Hang Seng Index fell 7.7 percent in its first few hours; and Australia's benchmark S&P/ASX 200 index plunged 6.5 percent in early trading.
The Indonesian stock exchange president said trading would be suspended "to prevent deeper panic" and trading in some of Tokyo's commodity and futures markets was temporarily halted.
While the financial and economic outlook is bleak these days, he said, the markets have overshot by far and stocks eventually will recover to more rational levels once resuscitation measures recently put into place by the U.S. Federal Reserve and Treasury and world banking authorities start to take effect.
"Central banks have moved heaven and earth, as they say, to support the working of global financial markets," and are not standing aloof as neglectful bystanders as they did during the Great Depression, Miss Bangalore said. "Capitalization and cleanup of balance sheet holds the key to a recovery."
Shortly after the markets closed, the White House said President Bush would make a statement Friday morning to "assure the American people that they should be confident that economic officials are aggressively taking every action to stabilize our financial system," White House press secretary Dana Perino said.
"Americans should be confident that every effort is being taken to stabilize our markets," she said.
Paul Milazzo, a professor at Ohio University specializing in 20th-century history, said that the panic on Wall Street has greatly exaggerated the economy's problems and suggests that investors are irrationally expecting a repeat of the Depression.
"While this is definitely a scary situation, it doesn't even approach the magnitude of the crash of 1929," he said, noting that today's financial problems are not as profound as those experienced 80 years ago and are being managed better by the government.
Mr. Milazzo added that analysts who glibly declare that today's economy is in a depression are unnecessarily scaring people and prompting them to worry needlessly about the safety of money sitting even in fail-safe bank deposits.
In a sign that the panic has spread to small investors, withdrawals from stock and bond mutual funds hit a record $72 billion during September at the onset of the credit crisis, according to TrimTabs, which tracks the flow of money in the economy.
The broad sell-off Thursday left few survivors as trading volume surged nearly by half with the expiration of the short-selling ban. A gauge of the nearly 1,000 stocks previously protected from short-selling fell nearly 10 percent, leading the market's nose dive.
The Dow and the Standard & Poor's 500 Index lost more than 7 percent of their value and ended down more than 40 percent below their record highs.
Banking stocks were buoyed at the start of trading by statements from the White House that the Treasury is considering making direct investments in bank stocks to recapitalize the financial system. But by day's end, hopes of yet another government rescue had faded.
Morgan Stanley, whose complaints about being victimized by short-sellers helped prompt the Securities and Exchange Commission to impose the ban, plunged 26 percent as hedge funds and other short-sellers set their sights on the once towering Wall Street firm.
GM shares plummeted 31 percent while Ford shares slumped 22 percent. Both companies, which have financing units that have been crippled by the credit crisis, had been protected by the ban.
Standard & Poor's Corp. slashed the automakers' ratings deep into junk territory and warned that they are likely to run out of cash and face "serious challenges" next year. Investors fretted that they won't make it that far and that $25 billion in guaranteed loans just enacted by Congress came too late to help.
Rapidly falling oil prices prompted a 12 percent drop in ExxonMobil's stock, dragging down the Dow industrials. Other oil stocks fell by similar amounts.
In a counterpoint to the stock market, a few rays of hope emerged in the credit markets. In response to a Federal Reserve program this week to buy three-month paper from major corporations, the rates on overnight paper that corporations had been forced to issue for weeks dropped by more than a percentage point.
Frozen markets for state and local debt thawed some, with Massachusetts selling a $750 million note issue it had postponed for weeks, avoiding the need for an emergency loan it had requested from the Treasury. Massachusetts' success gave hope to California and other states and cities that have had trouble selling short-term debt in recent weeks.
"It looks like the central bank's actions are starting to help marginally improve confidence enough where safe haven isn't the only thing on investors' minds," said Kim Rupert, managing director at Action Economics. "But it's only one small step so far. It's going to be a very jagged type of improvement. There's still a lot of factors that are going to keep anxiety at elevated levels."