Obama's "A Nightmare on Wall Street"

The Dow plunged 513 points into correction territory in its worst percentage decline in more than two years, while the broader S&P 500 shed 4.8%, after anxiety over the economy sent traders racing out of stocks and commodities. 

Today’s Markets

The Dow Jones Industrial Average fell 513 points, or 4.3%, to 11,384, the S&P 500 tumbled 60.3 points, or 4.8%, to 1,200 and the Nasdaq Composite slid 137 points, or 5.1%, to 2,556. The FOX 50 tumbled 37.5 points, or 4.2%, to 864.

Tension on Wall Street was extremely high on Thursday.  Traders piled into Treasury bonds, seen as one of the safest non-cash assets during tumultuous times.  Indeed, Treasury yields on 10-year Treasury securities dipped well below 2.5% — the lowest since November. 

“The mood is pervasively negative,” said Peter Kenny, managing director at Knight Capital Group.  ”It would take quite the imagination to come up with a silver bullet” to re-instill confidence in the economy. 

The VIX, sometimes referred to as a gauge of fear, spiked 36%. The Dow, S&P 500 and the Nasdaq all plunged into correction territory and into the red for the year. 

Gold, which as seen considerable buying amid the volatility in the equity markets, actually pared gains and dipped $7.30, or 0.44%, to $1,659 a troy ounce. 

While the selling had been ferocious, some market participants see the drastic selling as excessive. 

“The speed at which people are marking assets down doesn’t match the speed at which the economy has deteriorated,” said Daniel Greenhaus, chief global strategist at BTIG.  

Focus Shifts From Politics to Economy

With the debt ceiling raised, focus on Wall Street has shifted to the beleaguered economy. Essentially every economic sector has shown signs of weakness in recent weeks.  Indeed, economic expansion essentially screeched to a halt in the first quarter of this year, the labor market added a paltry 18,000 jobs in June and many manufacturing gauges have shown only slow expansion in that industry. 

Data released on Thursday showed the number of individuals applying for first-time unemployment benefits fell to 400,000 from a revised 401,000 in the prior week, slightly better than the 405,000 economists were expecting.  However, claims have remained right around the 400,000-level for weeks, leading economists to question the robustness of the recovery in the labor markets. 

“The pace of firings are moderating but are still too elevated at this point of the economic cycle,” wrote Peter Boockvar, managing director at Miller Tabak + Co., in a research note. 

Other analysts see more improvement in the labor market: “This report and recent trends in claims data suggest that the softness in the labor market may be beginning to subside,” analysts at Barclays Capital noted. 

Commodities in Free Fall

Energy markets were in free fall amid concerns that demand for energy may wane, coupled with strength in the greenback.

Light, sweet crude plunged $5.30, or 5.8%, to $86.63 a barrel.  Wholesale RBOB gasoline slumped 19 cents, or 6.6%, to $2.74 a gallon. 

Energy and materials stocks, like Chevron (CVX: 97.61, +0.77, +0.80%) and Alcoa (AA: 12.79, -0.15, -1.16%), were the biggest drags on the Dow.  While every major sector was down, a strong performance by Kraft Foods (KFT: 34.87, +1.09, +3.23%) helped buoy the non-discretionary consumer sector. 

European Central Bank President Jean-Claude Trichet also said he expects the central bank to hold on to an accommodative monetary-policy stance, and sees a slowdown in economic growth. The euro tumbled on Trichet’s commentary amid concerns interest rates that are held lower low in the longer-term will negatively affect demand for the currency. Also, the ECB held its benchmark interest rate steady at 1.5%, as was expected.  

The euro fell 1.3% against the U.S. dollar, while the greenback spiked 1.5% against a basket of world currencies. 

The Labor Department’s monthly employment report — which is widely considered to be one of the most important gauges of the economy — is slated for release on Friday.  The unemployment rate is forecast to have held steady at 9.2%, with the economy adding 57,000 jobs. 

Market participants are “sitting on pins and needles” with respect to Friday’s jobs report, Greenhaus said. 

A report released on Wednesday showed the private sector adding 114,000 jobs last month, modestly topping analysts’ estimates. 

Prices at the pump held steady for another night, although remain elevated as compared to last year.  A gallon of regular costs $3.70 on average nationwide, up from $3.56 last month, and well higher than the $2.74 drivers paid last year, according to the AAA Fuel Gauge Report. 

Corporate News

Kraft Foods (KFT: 34.87, +1.09, +3.23%) unveiled plans to spin off its North American grocery unit by the end of 2012.  The Dow-component also posted quarterly profits that topped Wall Streets’ expectation. 

General Motors (GM: 26.31, +0.32, +1.23%) posted second-quarter earnings of $1.54 a share, dashing past the consensus forecast of $1.20.  The automaker’s revenue came in at $39.4 billion, also topping forecasts of $36.7 billion. 

forecasts of $36.7 billion. 

Foreign Markets

The English FTSE 100 fell 1.8% to 5,520, the French CAC 40 dipped 1.6% to 3,398 and the German DAX fell 1.1% to 6,566. 

In Asia, the Japanese Nikkei 225 gained 0.23% to 9,659 and the Chinese Hang Seng slipped 0.49% to 21,885.