$787B stimulus bill becomes law, but stock markets still fall

NEW YORK -- The $787 billion stimulus bill became law Tuesday but did little to stimulate hope on Wall Street. Investors anxious about the nation's deepening economic funk fled stocks and sent the Dow Jones industrial average spiraling down almost 300 points — and within a fraction of its November bear market low.

The sell-off was the latest sign that investors aren't sure if the federal government's massive intervention to jump-start the economy will be bold enough to turn things around quickly. It also raised concerns that broader indexes such as the Standard & Poor's 500 are in danger of falling further and undercutting their Nov. 20 lows.

If the prior bear market lows fail to hold, it could signal another leg down for the stock market, which is already struggling through its worst bear since the late 1930s, analysts say.

"There is just very little inspiration to buy stocks now," says Richard Cripps, chief investment officer at Stifel Financial. "When you buy a stock, you are buying the future. And the future is very uncertain."

A lack of buyers led to plunging stocks and a rise in fear. The Dow fell 297.81 points, or 3.8%, to 7552.60, within 0.31 points of its 5½-year low. The Dow, home to hard-hit stocks such as Bank of America and General Motors, is down 13.9% this year and 46.7% off its record high.

Jittery investors sought out the safety of government Treasury bonds, as well as gold, which is considered a haven in tough economic times. A widely followed fear index, known as the VIX, jumped more than 13%.

A big obstacle confronting stocks is the sharp drop in U.S. company profits caused by the drying up of consumer spending due to mounting job losses and fear that worse times are ahead. Analysts polled by Thomson Reuters expect earnings of S&P 500 firms to shrink by more than 25% in the first two quarters of 2009, far below the 25%-plus growth estimated on Oct. 1.

"The economic and earnings recession is going to be longer and more severe than expected," says Hugh Johnson, chief investment officer at Johnson Illington Advisors. "The market has to go to a new level to reflect reality."