Economic Malaise Crushes Wall Street; Dow Dives 3%, Treasury Yields Plunge


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Worries that the global economy may be skidding back into a recession, and that little can be done to get it back on track, sent the markets plunging and traders rushing into safe-haven assets on Thursday morning.

Today's Markets

As of 10:20 a.m. ET, the Dow Jones Industrial Average tumbled 304 points, or 2.7%, to 10,823, the S&P 500 fell 29.4 points, or 2.5%, to 1,137 and the Nasdaq Composite plunged 31.3 points, or 2.4%, 2,477.

With global markets and U.S. equities in selloff mode, Treasuries rallied. The yield on the 10-year Treasury sunk to 1.776% from 1.868% -- briefly touching a record intraday low. Yields on the German bund, one of Europe's safety plays -- fell sharply as well.

While every major sector was down, materials and energy stocks took the biggest beating.  Mining giant Freeport-McMoRan Copper (NYSE:FCX) was recently nearly 9% to the downside, while oilfield-servicing firm Halliburton (NYSE:HAL) shed more than 6%.

The Federal Reserve moved to lengthen the maturity of its balance sheet, an indirect bid to stimulate the economy, at its meeting that concluded on Wednesday as was widely anticipated.  The $400 billion scope of the "twist" from short-term to longer-term Treasuries was, however, modestly broader than many economists had been anticipating, according to a research note from Goldman Sachs.

However, the Dow plunged 284 points in less than two hours after the decision that was dubbed "Operation Twist" was announced, in a sign that many market participants are wary that the central bank won't be able to reinvigorate a stalling economy.

"A downbeat outlook for the economy combined with the so-called ‘Operation Twist’ economic stimulus not going far enough in many people’s eyes," David Jones, chief market strategist at IG Index, a London-based trading firm, wrote in a research note.

'Legitimate Fears'

Weekly claims for unemployment benefits fell to 423,000 last week from a revised 432,000, higher than the 420,000 economists forecast.  The number of initial jobless claims have been hovering about the 400,000-mark for weeks -- yet another sign of struggles in the jobs market, a crucial component of broader growth.

Adding to the malaise on Thursday was data from the euro zone and China pointing to continued contraction in manufacturing in both major global economies.

"The monetary measures (unveiled by the Fed), along with Obama’s fiscal package announced earlier this month ... could kick-start the economy," Gavan Nolan, director of credit research at Markit, a risk analysis firm, wrote in a research note.

"But there is a legitimate fear that both monetary and fiscal policy has been too timid and the new measures will be ineffectual."

Buying Opportunities 

While global economic and financial concerns have ruled the day in the past two sessions, some analysts seeing opportunities for investors amid the tumult.

"This environment calls for investor caution, but not a full abandonment of risky assets," analysts at Barclays Capital wrote in a note to clients. "Very cheap valuations – especially in the sectors that are most vulnerable to European sovereign debt – suggest that there is considerable upside for patient investors," referencing stocks that have been slammed because of fears that Europe's debt crisis may deepen.

The euro took a beating in early trading, tumbling 1.1% against the U.S. dollar, while the greenback leaped nearly 1% against a basket of world currencies.

Energy markets sold off as well as a result of increased fear that a weakening economy will stunt demand and a considerably stronger dollar.  Light, sweet crude fell $4.70, or 5.5%, to $81.27 a barrel.  Wholesale RBOB gasoline dipped 11 cents, or 4.1%, to $2.56 a gallon.

Gold plunged $79.90, or 4.4%, to $1,729 a troy ounce.

Corporate News

UTX Technologies (NYSE:UTX) unveiled plans to acquire airplane-part maker Goodrich for $16.4 billion in cash -- a 16% premium to Wednesday's closing price and 47% higher than the price before news initially leaked last Thursday.

FedEx (NYSE:FDX) posted quarterly profits that topped Wall Street's estimates by a penny, but slashed its full-year outlook, sending shares lower.

Honeywell (NYSE:HON) said its expects its third-quarter earnings to come in at the high end of its forecast of 96 cents to $1.01 a share.

Foreign Markets

The English FTSE 100 plunged 4.5% to 5,049 and the German DAX slumped 4.3% to 5,202.

In Asia, the Japanese Nikkei 225 sunk 2.1% to 8,560 and the Chinese Hang Seng shed 4.9% to 17,912.