Stocks tumble near 2008 lows on more grim economic news

NEW YORK -- Hurt by a fresh barrage of bad news on the economy, jobs and corporate profits, the broad U.S. stock market continued its free fall Wednesday, edging ever closer to last month's bear market lows.

Confidence was jilted again, as Wall Street dealt with news of job cuts at securities firm Morgan Stanley, sales drops at department store giant Macy's, and a grim 2009 forecast from consumer electronics retailer Best Buy.

The latest signs of eroding business reinforced fears that consumers, who account for two-thirds of economic activity, will slash spending further. Consumers' reluctance to open their wallets will further hurt profits of already weakened U.S. companies.

A hard-to-break cycle of negative psychology is causing consumers to hunker down and is giving investors little reason to buy stocks, says John Bollinger, president of Bollinger Capital Management. "People are fearful," he says, "and everywhere they turn, that fear is reinforced."

Wednesday, the Dow Jones industrials fell 411 points, or 4.7%, to 8283. The Dow is just 107 points above its 2008 low of 8176 set Oct. 27. The broader Standard & Poor's 500 index fell 5.2%, to 852.30, leaving it just 0.4% above its low. The Nasdaq composite fell below its 2008 low after tanking 5.2% to close at 1499.21.

Investors will be watching closely to see if stocks can stay above the Oct. 27 closing lows, as well as the Oct. 10 intraday lows, because those lured buyers back into the market.

Wall Street also was grappling Wednesday with changes to the Treasury Department's $700 billion financial rescue plan, known as TARP, for Troubled Asset Relief Program.

What's dragging down stocks?

•Bailout plan uncertainty. While the government's moves have thawed credit markets and helped stabilize the financial system, changing the rules has created uncertainty. Some investors question whether the government has adequately helped stabilize the housing market or given adequate relief to consumers, says Scott Black of Delphi Management.

•Profit unpredictability. While stocks are getting cheaper, it is difficult to gauge how inexpensive they really are because it is impossible to predict how much profit growth will slow, says Todd Clark, trader at Nollenberger Capital Partners. Third-quarter earnings fell 15.3%, and more than four companies in the S&P 500 have given negative forward guidance for every company offering positive commentary, double the average, says Thomson Reuters.

•Buyers' strike. Right now, "There's no reason to buy," says Clark.