Stocks Tumble for Second Day; Treasurys Surge

A trader works on the floor of the New York Stock Exchange Thursday, Nov. 20, 2008.

(Jason DeCrow/AP Photo)

Stocks plunged for a second straight day Thursday, falling to levels not seen in at least five years, as financial and energy stocks tumbled while demand for the safety of government debt spiked.

Wall Street saw the most intense selling late in the session after hopes faded that lawmakers would quickly assemble an aid package for U.S. automakers, and as the Standard & Poor's 500 index broke through lows established in 2002. That breach of a key technical threshold sent a shudder through the market and touched off further selling.

The S&P 500 index fell 6.7 percent to its lowest close since April 1997. The Dow Jones industrial average, meanwhile, fell 445 points, or 5.6 percent, to its lowest close since March 2003. The decline brings the Dow's two-day drop to 873 points, or 10.6 percent, its worst two-day percentage loss since October 1987.

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Financial stocks plunged on worries that the government's financial rescue won't be sufficient to cover banks' losses. Meanwhile, a sharp drop in oil prices weighed heavily on energy companies.

Thursday's pullback came amid heavy volume, a welcome sign for some investors who are looking for the market to experience a cathartic sell-off that could lay the groundwork for a recovery. Heavier volume can signal investors are scared enough to sell rather than simply sit on the sidelines, which can result in relatively light volume.

Observers said the selling highlighted the entrenched pessimism about the prospects for the economy.

"Unrelenting gloom has taken over the markets," said Dana Johnson, chief economist at Comerica Inc. "The economic news, the concerns about some major financial institutions, the concerns about the auto sector, earnings reports, everything is coming out in a way that is just provoking a massive selling in the stock market."

"Back in October we were looking at a potential catastrophic meltdown of the credit markets, and that didn't happen," he said. "But that doesn't mean tremendous damage hasn't been done to the economy."