Updated from 4:21 p.m. ESTStocks in the U.S. slid for the fifth straight session Tuesday as an emergency Federal Reserve interest rate cut failed to fully quell recession worries, but Wall Street managed to avoid the massive losses feared after a broad selloff in overseas markets. The Dow Jones Industrial Average initially looked poised for a deep plunge, falling as many as 464 points at the open. It recovered somewhat to end down 128.11 points, or 1.06%, to 11,971.19. It was the first time the Dow closed below the 12,000 level since Nov. 3, 2006. Twenty-two of the Dow's 30 components were in the red, led by losses of 3.2% or more in Coca-Cola ( KO), Merck ( MRK) and Verizon ( VZ). Elsewhere, the S&P 500 fell 14.69 points, or 1.11%, to 1310.50. The Nasdaq Composite fared the worst, sliding 47.75 points, or 2.04%, to 2292.27. "In some regards, this is a moral victory," said Robert Pavlik, chief investment officer with Oaktree Asset Management. "We recovered nearly 350 points on the Dow, but it would've been a bigger plus to have seen buyers step in and bring the market into positive territory." Financial stocks, juiced by the Fed's move, helped pare Wall Street's losses. Washington Mutual ( WM) jumped 9%, Bear Stearns ( BSC) added 7.5%, Wells Fargo ( WFC) gained 5.8% and Merrill Lynch ( MER) advanced 4.9%. Bank of America ( BAC) climbed 4% despite a weaker-than-expected fourth-quarter earnings report. Retailers, another battered sector, also gained ground. Lowe's ( LOW), Home Depot ( HD), Target ( TGT), and Sears Holdings ( SHLD) all climbed by 7% or more. "There is a floor out there for certain sectors and there is still money to be put to work, so that's a positive thing to take away," said Steven Sheldon, CFA and principal with SMS Capital Management. "The fundamentals may not be there for a sustained rally, but investors could find some value in some sectors, like retail." Despite the rise in financials and retail, breadth was overwhelmingly negative. On the New York Stock Exchange 6.51 billion shares changed hands, as decliners topped advancers by a 10-to-7 margin. Volume on the Nasdaq reached 3.16 billion shares, with losers beating winners 2 to 1. Michael Sheldon, chief market strategist with Spencer Clarke LLC, said the markets are in the process of pricing in a potential recession and a bear market, but there are some positive signs starting to emerge. "Calling a market bottom today is certainly a tough call, but the odds are rising for some kind of short-term rebound in the U.S. equity markets," said Sheldon. Still, the Dow has now fallen 9.7% during 2008, the S&P 500 has dropped 10.8%, and the Nasdaq has lost 13.6%. Since its all-time record close on Oct. 9, the Dow has plunged 15.5%. That level is approaching a so-called bear market, typically characterized as a 20% market decline from a high. "We're in the middle of a bear market and this is where people are getting emotional about it," said Phillip Roth, chief technical market analyst with Miller Tabak. "We're in an area where the market could stabilize, but we're going to see a lot of volume and volatility." Amid fears of a recession that spurred panic selling overseas, the Federal Reserve took the unusual step of making a 75-basis-point cut outside of its regularly scheduled meeting. The central bank said it made the move in light of a "weakening economic outlook and increasing downside risks to growth." Wall Street had widely been expecting the Fed to lower rates by 75 basis points at its next meeting, scheduled for the end of the month. But with recession worries putting stocks under significant pressure since the beginning of the year, many had been calling for an inter-meeting cut.
"There can be little doubt the Fed would have waited until the meeting next week if it had not been for the state of the markets," said Ian Shepherdson, chief economist with High Frequency Economics. "This move is not an instant fix. The economy is still staring recession in the face, but at least the Fed now gets it." U.S. Treasury prices rallied following the Fed announcement. The 10-year note was up 1-9/32 in price, cutting the yield to 3.48%. The 30-year bond was up 1-3/32, yielding 4.22%. Global markets have been sliding over the past two days. Overnight, Japan's Nikkei 225 lost 5.7% and has fallen 10% since the start of the week. Hong Kong's Hang Seng dropped 8.7% during its last session. On Monday, European bourses notched their worst losing session since the terrorist attacks on Sept. 11, 2001. Markets were stabilizing on hopes the European Central Bank and the Bank of England would cut rates. Domestic equities didn't trade Monday in order to observe Martin Luther King Jr. day. The new session marked the start of a busy week for earnings. DuPont ( DD) posted a 37% decline in fourth-quarter profit from a year ago, but results still topped the Thomson First Call average estimate. Fellow Dow component Johnson & Johnson ( JNJ) also reported fourth-quarter earnings that beat forecasts. DuPont slipped 0.4% to $42.54, and J&J lost 1.5% to $65.27. Embattled bond insurer Ambac Financial ( ABK) posted a quarterly loss of $3.3 billion, but shares surged 28.6% to $7.97 after interim CEO Michael Callen said the company "is evaluating strategic alternatives with a number of potential parties." Apple ( AAPL) fell 3.5% ahead of its earnings report after the bell. The company's fiscal first-quarter results beat estimates, but its guidance for the current quarter fell short of Wall Street's estimates. Away from equities, commodity prices were uneven. Crude oil fell 71 cents to end the day at $89.21 a barrel, while gold futures jumped $8.60 to close at $890.30 an ounce. With the financial markets in chaos, the White House is attempting to pass a fiscal stimulus plan. President Bush announced the outline of a $145 billion proposal Friday, one he hopes will be enacted swiftly in order to keep the economy from entering a recession. Treasury Secretary Henry Paulson gave a speech ahead of the open, saying that while the U.S. economy is resilient, the stimulus package is necessary and must be implemented quickly in order to boost the economy this year. Action, he said, must be "swift, robust, broad-based and temporary."