Stocks plummeted Wednesday amid heavy waves of selling as jittery investors responded to a broad array concerns, from disappointing economic data in the United States to slowing European and Asian economies to the spread of the Ebola virus.
With the Federal Reserve unwinding stimulus policies that supported the recovery, investors are becoming uncertain about the direction of the economy, analysts said. Economic reports that show retail sales declining in September, manufacturing slowing in the New York region, and wholesale prices falling, a possible sign of weakening demand, added to the gloom.
Nariman Behravesh, chief economist at IHS Global Insight, a Lexington forecasting firm, said the US economy remains sound as employment increases and overall economic activity expands. But “the markets are in one of those moods where all news is bad news, no matter how good or bad,” he said. “The market goes through these manic and depressive phases, and this is the depressive phase.”
After shedding as much as 460 points during the day, the Dow Jones industrial average recovered most of those losses to close down 173.45 points at 16,141.74. The Chicago Board Options Exchange Index which measures market volatility -- the so-called “fear index” -- surged to its highest level since 2011 on Wednesday.
Markets in recent weeks have moved closer to what professional investors refer to as a “correction,” which occurs when a benchmark index closes 10 percent or more below a recent peak. The last correction occurred in October 2011.
John Sylvia, chief economist at Wells Fargo & Co. in Charlotte, N.C., said there are reasons to be concerned, citing the Commerce Department report Wednesday that showed retail sales falling last month across most categories, including auto dealerships, furniture stores, and gasoline stations. Retail sales are an indicator of consumer spending, which accounts for about 70 percent of US economic activity.
“That tells you something fundamental about the American consumer,” Sylvia said, that they may be pulling back.
Sylvia added that he possibility of another recession in Europe and a slowdown in growth in China also are changing the recently optimistic psychology in the market “quite a bit.”
Europe and China are among Massachusetts biggest export markets and the weakening of those economies could affect the state’s economic growth, said Alan Clayton-Matthews, an economics professor and Northeastern University. Among the questions are whether Europe will slip back into recession and China’s overheated real estate market will end in a bust that would unsettle the global economy.
“If there were clear answers to these questions,” Clayton-Matthews said, “I don’t think the stock market would be so volatile.”
Local business executives, like Ron Dechene, president of Auburn Systems LLC, in Danvers, say they are increasingly nervous about Wall Street and the global economy. Dechene’s company manufactures electronic dust monitors for factories around the world and about 15 percent of Auburn’s business comes from exports. It has offices in Europe, China, South America. and elsewhere.
So far, its foreign business is holding up and Auburn hasn’t seen any cutbacks in orders, Dechene said. But, he added, it’s hard to imagine the stock plunges of late won’t have an impact on the US and global economies – and his business.
“It has echoes of what we saw in 2008 and 2009,” Dechene said. “I’m not sure this time will be that bad. But we are concerned.”
All this is unfolding as the Federal Reserve withdraws its support from the economy. The Fed this month is set to end its bond buying program, which was aimed at lowering long-term interest rates such as mortgages. Many analysts also expect policy makers to begin raising the Fed’s benchmark short-term rate, which has held near zero since 2008, around the middle of next year.
The Fed has begun shifting policies as result of a strengthening US economy. The nation has added more than 2 million jobs this year and the unemployment rate last month slipped below 6 percent for the first time in about six years.
In its report known as “Beige Book,” which collects anecdotal information from business across the country, the Fed on Wednesday characterized US economic growth as modest to moderate. The New England economy was described as “mixed,” with manufacturers citing weaker results than in earlier reports this year. Tourism, a bright spot, was characterized as robust, but overall, “firms are not generally hiring.”
Other indicators also have pointed to global economic slowdown, including energy markets. With concerns over weakening demand, the price of crude oil in New York fell below $82 a barrel Wednesday. Crude prices have plunged about $10 a barrel over the past month, and more than $20 since the summer
On the bright side, the drop in crude prices is reaching US gasoline pumps, which is good for both consumers and the economy, said Behravesh, the Global Insight economist. He said a 10 cent drop in gas prices is the equivalent of a $20 billion tax cut for consumers.
Average US gas prices have dropped about 50 cents a gallon since the end of June, according to the Energy Department.
“It’s money back in people’s pockets,” Behravesh said.