"We've been looking to the Fed to more or less have our back," said Jane Caron, economist at Dwight Asset Management in Burlington, Vt. "Now with inflation pressures being what they are, the Fed is limited in what it can do to support the economy and the markets."
The news Thursday was something of a microcosm of the stock market's recent afflictions.
In futures trading on the New York Mercantile Exchange, oil jumped $5.09 to $139.64 a barrel, a record closing price, after briefly topping $140 for the first time.
A debate is raging in Washington and on Wall Street about oil's astounding rise in the last year and whether it has been driven primarily by increasing global demand or by speculators.
Whatever the cause, energy prices have been hammering consumers and companies.
"It all pivots around the price of oil," said Gail Dudack, head of Dudack Research Group. "If the price of oil was not galloping higher for the last 12 months, we wouldn't be as worried about homeowners, consumers and profit margins."
Meanwhile, depressed bank and brokerage stocks were again hit especially hard Thursday as Goldman, Sachs & Co. issued a downbeat report on the sector and investors braced for another potential round of huge mortgage-related write-offs.
The financial industry's woes have lingered far longer than many experts expected and may not lighten until the housing market improves. As home prices head lower and foreclosures increase, banks are forced to write off more loans, moving further into a defensive crouch in which they rein in lending.
"Home prices are at the center of a vicious circle that is blocking the provision of credit to the overall economy," said Douglas Peta, market strategist at J.&W. Seligman & Co.
The Dow plummeted 358.41 points, or 3%, on Thursday to 11,453.42. The blue-chip indicator is down 14% for the year and 19% from its all-time high set in October.
The broader Standard & Poor's 500 index fell 2.9% on Thursday and is down 18% from its October peak.
Though the indexes haven't met the technical definition of a bear market -- a 20% drop -- stocks' recent drubbing has made their recovery from mid-March to mid-April, during which the Dow rose 11%, look like a short-lived spike within a longer, deeper downturn.
"It was a fake rally," said Paul Desmond, president of Lowry Research Corp., a stock-research firm in North Palm Beach, Fla.
