Stocks See Near-Record Decline on Retail Sales, Investor Jitters

Oct. 16, 2008 — -- Hopes that stocks would hold on to Monday's massive gains faded quickly today as the Dow Jones industrial average dived more than 700 points, the second-largest point decline on record.

"Today, it just seems like there's no catalyst for anyone to buy any stocks. ...I think investors don't know what they want to do," said Todd Leone, a managing director at New York-based Cowen and Co.

The Dow closed down 733 points, or 7.9 percent, at 8,577.91, after a major sell-off during the last half hour of trading. The plunge followed Monday's historic, 936-point rally.

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The S&P 500 Index also closed 9 percent lower, down 90 points at 907.83 while the Nasdaq fell nearly 8.5 percent, or 151 points, to 1628.33.

The declines are being largely blamed on investors' decisions to take profits after Monday's rally.

"I think that fears die hard. ... If you're in the S&P, you've lost more than a third of whatever capital you've had this year. There's a tendency to say, 'OK, the market's up a little bit, it's up 10 percent. Let me get out and never hear about this again,'" said Stephen Leeb, the chairman of the investment committee at Leeb Capital Management in New York.

Leeb said there were similar drops following market rallies in 1974 and 1987.

"Initial rallies off major lows almost always are tested," he said. "This so far is not out of the ordinary -- it's more or less what you'd expect to see happening."

Leeb said that remarks by Federal Reserve Chairman Ben Bernanke, who spoke at the Economic Club of New York, also contributed to today's declines.

"I think maybe the market was looking for a little bit more from Chairman Bernanke than it got," he said.

Leeb said investors sold after hearing Bernanke say, "There wasn't an immediate magic bullet that was going to solve the entire problem."

Other major factors driving the market today included weaker-than-expected retail sales reports and the release of the Federal Reserve's periodic report on the health of the economy.

"Everything was very weak," Leone said. "People are not going out and spending."

Leone said that Exxon Mobil was one of today's biggest and most surprising losers. The drop in the oil company's stock, he said, reflected the decline in oil prices.

In the summer, when oil was up at $150 a barrel, Exxon shares were trading at $96, he said.

"These stocks were absolutely out of control," he said.

Today, Exxon stock fell 14.6 percent to about $63.50.

Analysts see a bright side to today's volatility.

Leeb said he was encouraged by the fact that positive earnings reports by Wells Fargo, the bank that recently acquired Wachovia, and Coca-Cola drove their stocks higher.

"It's important that the market doesn't just reject all good news," he said. "Last week, when the market was going down in its most intense way, I don't think anything was able to boost the market, able to boost a particular stock."

Leone said today's drops may ultimately be healthy for the market.

"When you're trying to make a bottom, you don't go straight up. There's a lot of back and fill and a lot of consolidation and I think that's what we're seeing today," he said. "I'm hoping that the bottom was found last Friday, but we'll see."

With reports from ABC News' Scott Mayerowitz.