Stocks Sink as Data Disappoint

Updated from 4:16 p.m. EST

Stocks in the U.S. finished well under water after comments from Federal Reserve Chairman Ben Bernanke compounded the effects of steep corporate losses and sluggish economic data.

The Dow Jones Industrial Average fell 112.59 points to 12,581.69, the S&P 500 shed 12.38 points to 1367.64, and the Nasdaq surrendered 22.21 points at 2331.57. All three were down around 0.9%.

Early losses intensified after Fed chief Ben Bernanke, speaking before the Senate Banking Committee, said that some smaller domestic banks with significant investments in the imploding real estate market will probably fail.

Bernanke said he doesn't expect the same for America's largest banks, but the main financial indices still took a big hit. The NYSE Financial Services Index plunged 162 points to 7623, and large-bank tracker KBW Bank Index gave up 3 points, or 3.4%, to around 86.

"People are making mental connections to what occurred in the early '90s," explained Jason Pride, director of research at Haverford Investments. "It wasn't exactly pretty, and the number of banks closing per week was pretty high. And I think that's frightening to a lot of people."

Bernanke otherwise reiterated much of what he intoned on Wednesday before members of the House of Representatives, essentially saying that the downside risks to the economy will likely continue to trump the central bank's worries about lower rates stoking inflation.

He also said the U.S.'s present situation does not compare with the stagflation of the 1970s, when an economic downturn occurred alongside accelerating inflation. He implied more interest rate cuts are possible.

Pride agrees with Bernanke's assessment and said that economic problems, at least on the surface, "don't look to be the same size and magnitude" even when compared with those of the early 1990s. "It's not as pervasive, and it's not across the board. We may still manage to avert a full-blown recession. It's going to take a little while for everything to sort its way through."

Disappointing data led to the market's initial downturn, with one of the biggest blows coming from the Commerce Department. The agency said gross domestic product in the fourth quarter was up 0.6%, unchanged from the first estimate, and below economists' expectations of 0.8%. In the third quarter, GDP rose nearly 5%.

Also, the Labor Department said weekly jobless claims rose by 19,000 to 373,000, about 23,000 more than what analysts had anticipated.

Treasury prices were sharply higher. The 10-year note was up 1-14/32 in price to yield 3.67%, and the 30-year bond gained 2-01/32 in price, yielding 4.52%.

"This is a pretty substantial rally today," said John Canavan, market analyst for Stone & McCarthy Research Associates, on the move in bonds.

Investors tend to flock to bonds amid an uncertain stock market, and Canavan pointed out that the newest economic data capped off a string of recent releases wherein the numbers weren't simply soft but, in fact, "dramatically weaker than expected."

He noted that even today's $16 billion government auction on five-year bonds, which can put pressure on prices by flooding the supply, didn't have that effect. The five-year was up 30/32 in price, yielding 2.68%.

The dollar, meanwhile, hit another new low against the euro, falling to $1.5228. In the prior session, the greenback hit a bottom of $1.5143 per euro after broaching the $1.50 mark for the first time.

On the corporate side, Sears Holdings (SHLD Quote) said its fiscal fourth-quarter profit fell almost 48% as the struggling retailer continued to suffer from falling sales and, as a result, higher markdowns on products that weren't sold. Sears missed top- and bottom-line estimates, as well. Shares mostly hugged the flat line and finished down 20 cents to $101.40.