Stock Market Tumbles: Dow Down 311 Points

July 26, 2007 — -- The stock market opened down slightly today, following yesterday's huge sell off. Investors may be worried that a better then expected economic report released today may force interest rates higher. The Government said the economy in the second quarter grew at an annual rate of 3.4 percent, much better then expected.

The joy and jubilation that just last week sent Wall Street to record highs vanished Thursday as negative news about the housing market and rising oil prices hit home in a big way.

Adding to Thursday's big sell off was a growing inaccessibility of credit.

It all pushed major markets to close down in the second-worst day of trading this year.

The Dow Jones Industrials Average plunged 311 points, a 2.3 percent decline. The NASDAQ closed down 1.8 percent and the Standard & Poor's 500 fell 2.3 percent as the market became very nervous.

Stocks only did worse this year back on Feb. 27, when the Dow closed down 416 points and the NASDAQ dropped more than 96 points.

Since then, the markets have had a steady climb up, with the Dow topping 13,000 in April and then briefly crossing 14,000 last week.

Even after Thursday's dive, the Dow is still up more than 8 percent from the beginning of the year, when it stood at 12,480.69.

So does this mean that it's time to sell and limit losses?

Not at all, said Hugh Johnson, of Johnson Illington Advisors.

"The one mistake you make as an individual investor is get caught up in the day-to-day and hour-to-hour swings in the stock market. That's noise and it doesn't count," Johnson told ABC News. "It's important to recognize the underlying trend and they're still positive. But don't get caught up in the emotional signs of the market, because you will make mistakes."

In the short-run, the real impact is going to be felt by those looking to buy a home.

Lenders have been tightening standards and raising rates as more and more people -- including now some with good credit -- start to miss their mortgage payments.

"The mortgage terms will not be as generous as they were in 2004 and 2005, when they weren't only generous but also encouraged speculation," Johnson said.

The big drop on Wall Street indicates that fear is finally setting in with investors.

"Today, we finally got to a level of energy prices that became shocking," said Art Hogan, an analyst at Jeffries and Co. "With oil spiking, we are finally taking notice and one of the biggest fears is that the residential real estate market is showing signs that it's getting worse and not better."