Any hope that improvements in global credit markets would provide lasting relief to Wall Street is quickly fading.
On Wednesday, the Dow Jones industrial average plummeted more than 500 points after a rash of negative earnings reports spooked stock investors. The loss erased what remained of Monday's 413-point rally and made the Dow's gain last week -- its biggest in more than five years -- seem a distant memory.
Analysts blamed the sell-off on a shift in investor focus from the global credit crisis -- which continued to show signs of easing Wednesday -- to the prospects of a deep and protracted worldwide recession. A broad retreat in commodity prices and a forecast by Citigroup analysts that the U.S. economy was headed toward one of the worst recessions since World War II contributed to the darkening picture.
"It's all about the depth of the global recession," said Peter Cardillo, chief market economist at Avalon Partners. "The fact that we see oil prices falling off a cliff and the rest of the commodity markets in dire straits is raising the question of how steep the decay in the global economy will be.
"That's what has really got this market on the ropes."
Online retailer Amazon.com added to the angst after the closing bell when it reported higher third-quarter profit but cut its sales forecast for the full year. Its shares tumbled 14% in after-hours trading.
The Dow closed down 514.45 points, or 5.7%, at 8,519.21 after a furious sell-off late in the session put the index down almost 700 points. The broader Standard & Poor's 500 index fell 58.27 points, or 6.1%, to 896.78, and the tech-heavy Nasdaq composite index slid 80.93 points, or 4.8%, to 1,615.75.
At its worst levels of the day, the Dow was below its five-year closing low of 8,451.19 reached Oct. 10. The benchmark S&P 500 actually finished below its recent low ebb, closing at its lowest level since April 2003.
All 30 of the stocks in the Dow were lower on the day, led by economically sensitive companies such as consumer goods maker Procter & Gamble. Losers outnumbered winners almost 6 to 1 on the New York Stock Exchange.
The Dow managed to avoid falling below the intra-day low of 7,884.82 it hit Oct. 10. Breaching that mark could deal a further blow to investor confidence, some analysts said.
Governments around the globe have taken aggressive action in recent weeks to stave off a collapse of the international financial system, and those efforts appear to be bearing some fruit. The perception of such improvement helped fuel last week's rally.
Interbank interest rates continued to inch lower Wednesday, indicating an increased willingness by banks to lend to one another. But worries about the creditworthiness of borrowers in a declining economy may be stifling lending despite the greater availability of funds, said Axel Merk, president of Palo Alto mutual fund company Merk Investments.
"Banks are hoarding cash; they're not making loans," Merk said, citing Federal Reserve data showing a huge increase in bank reserves. "If credit is less available, everybody pares down spending, they pare down investments."
Among the earnings reports weighing on investors Wednesday were a $23.9-billion quarterly loss at banking company Wachovia and lower profits at aerospace giant Boeing, drug maker Merck and insurer Travelers. The downbeat reports offset positive earnings news from the likes of McDonald's, Philip Morris and Apple.
Investor sentiment was also roiled by news out of Washington, where former executives of credit rating firms said at congressional hearings that they had been looking to maximize profits rather than protect investors when they set credit ratings on many of the toxic securities that are at the heart of the current financial crisis.
Commodity prices also fell sharply, with oil down $5.43 to $66.75 a barrel -- the lowest closing price for crude since June 2007. Although that's good news for consumers, it's also a signal of sharply lower global demand and stoked worries about a recession. Lower oil prices are also depressing shares of energy companies. Energy giants Exxon Mobil and Chevron were down 9.7% and 7.6% respectively.
Gold prices also sank, falling $32.80 to close at $733.30 an ounce after touching a 13-month low.
A strong dollar contributed to the slide in commodity prices. The greenback surged to multiyear highs against the euro, the British pound and the Canadian dollar -- another sign that investors expect weakness in overseas economies.