Updated from 4:09 p.m. EST
Stocks started off 2008 on a sour note Wednesday, continuing the slide that ended the previous year, owing to a weaker-than-expected read on manufacturing activity and another surge in oil prices.
Dow Jones Industrial Average
sank 220.86 points, or 1.67%, to 13,043.96 and for a time was below 13,000. It was the worst point decline for the Dow at the start of any trading year. All but one of the Dow's 30 components traded lower, paced by a 4.9% loss in shares of
At the same time, the
was off 21.20 points, or 1.44%, to 1447.16, and after opening higher, the
lost 42.65 points, or 1.61%, to 2609.63. It was the fourth straight decline for the tech-heavy Nasdaq.
"2008 is certainly starting off the way which 2007 ended, which isn't good," said Phillip Roth, chief technical market analyst with Miller Tabak. "We're in what is normally one of the strongest periods of the year, as new money comes available to buy stocks. People are making a conscious decision not to buy, which is a bearish omen. Still, this is just one day."
Breadth was dismal. About 3.35 billion shares changed hands on the
New York Stock Exchange
, with decliners beating advancers by a 10-to-7 margin. Volume on the Nasdaq reached 1.99 billion shares, as losers topped winners 2 to 1.
The major averages tumbled following a disappointing factory index from the Institute for Supply Management. The data showed a decline to a reading of 47.7 in December, indicating a contraction in manufacturing. Economists had expected the index to come in at 50.5, down from 50.8 in November.
"The ISM number really is a warning signal," said Paul Mendelsohn, chief investment strategist with Windham Financial. "Once the manufacturing side contracts, it could indicate more layoffs in the sector, which in turn would mean weaker job growth. This is not a good way to start off the year."
Ian Shepherdson, chief economist with High Frequency Economics, said the ISM suggests that pullbacks in other areas are intensifying and supports the view that the
still has work to do when it comes to rate cuts.
"Overall, this is a seriously weak report, though the headline is still not quite at recession levels," he said. "We thought that the small rebound in December auto output would be enough modestly to lift the index, so this is very disappointing news. But it is far too close for comfort, and it reinforces our view that the Fed has a lot more easing to do."
U.S. Treasury prices were rallying after the ISM report. The 10-year note jumped 31/32, dropping the yield to 3.91%. The 30-year bond rose 1-25/32 in price, yielding 4.35%.
Record oil and surging gold prices also weighed on sentiment. Crude oil touched the psychologically important $100-a-barrel level for the first time ever, before finishing up $3.64 at $99.62 a barrel. Gold futures jumped $22.10 to $857 an ounce, and silver rose 37 cents at $15.22 an ounce.
Among subsector indices, the Philadelphia Oil Service Sector Index added 2.1%, and the Amex Gold Bugs Index soared 6.3%.
Stocks initially pared losses before dropping again following in the minutes from the Dec. 11 Federal Open Market Committee policy meeting. At that gathering, the central bank cut the fed funds rate by 25 basis points to 4.25%, the third straight reduction. The Fed cited higher energy prices as the potential catalyst for inflation, but also pointed out softening in business and consumer spending and strains in financial markets.
The minutes, released at 2 p.m. EST, said that while the Fed agreed that the stance of policy should be eased, members of the FOMC also believed that the situation was "quite fluid and the economic outlook unusually uncertain.
"Financial stresses could increase further, intensifying the contraction in housing markets and restraining other forms of spending," the minutes read. "Some members noted the risk of an unfavorable feedback loop in which credit market conditions restrained economic growth further, leading to additional tightening of credit; such an adverse development could require a substantial further easing of policy."
Boston Fed Present Eric Rosengren was the lone dissenter during the policy vote as he regarded the weakness in the incoming economic data and in the outlook for the economy as "warranting a more aggressive policy response."
Also on the economic docket, the Commerce Department said construction spending unexpectedly rose 0.1% in November, compared with forecasts of a 0.5% decline.
Last time out, the U.S. market ended a wild year to the downside, with stocks sliding in a lightly traded session. The Dow fell 101.05 points, or 0.76%, to 13,264.82. The S&P 500 lost 10.13 points, or 0.69%, to 1468.36, and the Nasdaq dropped 22.18 points, or 0.83%, to 2652.28.
For all of 2007, the Dow gained 6.4% and the S&P 500 rose 3.5%, but both were hampered by weak a fourth-quarter performance. The Nasdaq was the best big index, climbing 9.8%.
Marc Pado, U.S. market strategist with Cantor Fitzgerald, said that while the year ended on a sluggish note, it was still a strong one for the major averages.
"Considering that the year was plagued by weakness in housing, a credit crisis, crude prices rising 57.4% and a dollar down 8.2%, and given the war in Iraq and the negative rhetoric with Iran, I would have to say that the performance, while not measuring up to the historical norm for a pre-election year, should be viewed as having been pretty resilient in the face of adversity," he said.
In corporate news, several ratings changes were making headlines. Among upgrades, Citigroup raised its rating for
to buy from hold. Shares advanced $3.61, or 3.9%, to $96.25.
On the downside, Banc of America Securities downgraded several semiconductor names, including Intel,
Advanced Micro Devices
The Philadelphia Semiconductor Sector Index lost 2.8%.
Meanwhile, Bear Stearns cut
to peer perform from outperform, JPMorgan Chase reduced its rating for
to neutral from overweight, and CIBC downgraded
to sector perform from sector outperform.
Starbucks fell 5.7% to close at $19.31, FedEx slumped 3.4% to $86.16, and UnitedHealth ended down 2.6% at $56.67.
Markets overseas lost ground. Hong Kong's Hang Seng fell 0.9% overnight. Among European bourses, London's FTSE 100 fell 0.6%, and Germany's Xetra Dax slid 1.5%.