Stocks Bow to Bad News; Dow Slides 5%

As credit markets remained stagnant and the risk of inflation appeared to decline, the European Central Bank and the Bank of England both reduced their key interest rates Thursday. The ECB dropped its target rate 50 basis points to 3.25%, and the Bank of England slashed its rate 1.5% to 3%.

Hanlon said that the market was anticipating rate cuts from Europe, and that there are more to come. "The global economy is still deleveraging. You're going to see more actions like these from central banks around the world," he said.

Additional corporate headlines were offering signs of trouble. Bloomberg reported that Citigroup (C Quote) and Goldman Sachs (GS Quote) have begun laying off staff as part of a plan to eliminate more than 12,000 jobs combined as the financial crisis continues.

Citigroup shares dropped 8.8% to $11.52, and Goldman tumbled 7.7% to $80.72.

Separately, mutual fund operator Fidelity Investments said it is cutting its head count by about 1,300 and will make additional staff reductions in early 2009.

Another report by Bloomberg indicated that Cerberus Capital may give up its stake in GMAC, which it owns jointly with GM (GM Quote). The move is intended to allow GMAC to become a bank and secure funding from the government without subjecting Cerberus to additional regulation. GM lost 14% to $4.80.

Elsewhere in the financial space, Wells Fargo announced late Wednesday it would issue $10 billion in common stock, sending shares down 9.2% to $28.77.

In the technology arena, Intel (INTC Quote) CEO Paul Otellini reportedly warned at a technology conference that the U.S. is in a recession that will last for two or three quarters. The stock slipped 7.9% to $13.87.