June 26, 2008 -- Stocks plummeted today as oil hit a new record and signs of trouble from the financial, automotive and high-tech industries soured the mood on Wall Street.
The Dow Jones Industrial Average lost more than 350 points, falling to its lowest level since September 2006. It closed at 11,453.42, a loss of more than 3 percent. The Nasdaq and S&P 500 also had bad days: the Nasdaq closed down 3.3 percent -- nearly 80 points -- at 2,321.37 while the S&P 500 closed down 2.9 percent at 1,283.15 after a loss of nearly 39 points.
Among the factors driving the drop:
After investment bank Goldman Sachs downgraded General Motors to a "sell" rating, the share price for the struggling automaker — and Dow component — plummeted to its lowest level since 1955. Major GM suppliers also saw their shares plunge.
Goldman Sachs also urged investors to lower their expectations of the financial sector, cutting Citigroup to a "sell" rating. The bank saw its shares drop more than a dollar by the late afternoon.
Blackberry-maker Research In Motion issued first quarter earnings results and a second-quarter outlook that missed analyst's expectations. Meanwhile, Oracle, another major player in the tech sector, posted a strong showing in its fourth-quarter results but released a disappointing first-quarter outlook.
Oil prices surged into record territory today, boosted by a report predicting that gas prices will hit $7 a gallon in the United States within two years. The market didn't like the news.
After an intra-day high of $140, oil closed at $139.65 a barrel. The new price represents a more-than-$5 spike from yesterday's close and was caused in part by statements by OPEC's president that a barrel of oil could soon be trading for more than $150 and reports that Libya is weighing cutting its oil production.
Investors also grew wary that the Federal Reserve would not raise interest rates until late this year, leaving little hope that the dollar with strengthen. Oil is traded in dollars and part of the run-up in oil prices has been attributed to the weak dollar.
$7 a Gallon Gas?
But today's oil price surge may pale in comparison to what some economists are predicting will happen in the near future. American motorists may soon find more pain at the pump thanks to a $3 spike in gas prices by 2010, according to a new report by economists at CIBC World Markets.
Economists at the investment bank predict that motorists will see the price of gas rise to $7 per gallon within two years, a 75 percent increase.
CIBC Chief Economist Jeff Rubin contrasted the expected price surge with those that occurred during the 1970s and 1980s OPEC oil shocks.
"Back in '73 and '79 [to] '81, somebody turned off the spigot," Rubin told ABC News.
Today, he said, "the spigot is wide open — the problem is not enough is running through it relative to world demand."
The CIBC report said that Saudi Arabia's pledged 200,000 barrels per day oil production increase and China's reduction of subsidies for domestic fuel prices will not do enough to hold oil prices in check.
The "basic laws of supply and demand" are "no longer operative in crude oil markets," the report said.
The run-up in prices will cause a dramatic change in American driving behavior, the report said. Rubin and co-author Benjamin Tal predicted that by 2012, there would be roughly 10 million fewer cars on U.S. roads than there are today.
Roughly half of those giving up their cars will be low-income Americans — specifically, those earning less than $25,000 a year, according to the report — who won't be able to afford to continue paying for gas but do have access to public transportation.
"This is going to cost money," Rubin said. "The idea of commuting 30, 40 miles a day to work is going to be untenable for most people when gasoline costs $7 a gallon."
The Associated Press and ABC News' Scott Mayerowitz contributed to this report.