Stocks Find No Solace in Fed

Ian Shepherdson, chief economist with High Frequency Economics, said that the drop in consumer confidence was clearly foreshadowed by steep declines in the University of Michigan consumer sentiment index, and it may not be the end of the process.

"Both the headline and current conditions indexes plunged, almost exactly reversing their July gains," he said. "What the easing in gas prices did, the chaos in the markets undid. We expect a further modest decline in confidence over the next month or so as people see the loss of value in their mutual fund, 401(k) and brokerage statements."

Following by a day a report on existing-home sales, which fell 0.2% as inventories soared 5.1%, more bad news was pressuring the housing sector. The S&P/Case-Schiller Index of home prices showed a 3.2% drop during the second quarter, the biggest decrease since the index began 20 years ago.

Housing stocks D.R. Horton (DHI), Lennar (LEN), Centex (CTX) and Pulte Homes (PHM) all finished down 3% or more.

The Dow has now dropped 338 points over the last two sessions, while the S&P 500 has given back 47 points and the Nasdaq has declined 76 points.

Breadth weakened considerably from the previous session. On the New York Stock Exchange 2.74 billion shares changed hands, as decliners topped advancers by a 7-to-1 margin. Volume on the Nasdaq reached 1.56 billion shares, with losers outpacing winners nearly 4 to 1.

More bad news was weighing on the financial sector. The Financial Times said that Barclays (BCS) may have several hundred million dollars of exposure to troubled debt through links to German lender Saschen LB.