Traders work on the floor of the New York Stock Exchange. The Dow Jones industrials… (Justine Lane / European…)
Reporting from New York, Washington and Los — The stock market had its worst day in more than a year Thursday, with the Dow industrials tumbling 376 points, as fear intensified that a debt crisis in Europe could jeopardize the global economic recovery.
The sell-off put the major U.S. stock indexes in the red for the year and down more than 10% in less than four weeks — the market's sharpest retreat since March 2009, when share prices bottomed at 12-year lows.
There was no news Thursday that could explain the day's declines. And despite the fiscal problems of Greece and other Mediterranean countries, most forecasters predict that the U.S. economy will continue the moderate recovery it began last year.
But mixed signals coming from across the Atlantic about the ability and willingness of leaders there to manage the crisis have made U.S. investors anxious.
"There's a tremendous amount of uncertainty globally right now," said Anthony Conroy, head equity trader at BNY ConvergEx Group in New York. "That indecision and the uncertainty is causing people to panic here a little bit."
Two weeks ago, European leaders announced a nearly $1-trillion program to stabilize some debt-wracked member nations. That led to a one-day spike in stock prices, but since then there have been questions about the long-term viability of the program, as well as the resolve of Europe's larger nations to follow a common strategy.
Federal Reserve Gov. Daniel Tarullo said Thursday that a downturn in Europe could hurt U.S. exports, hit American financial institutions that have lent to European governments, and generally make credit and loans harder to come by.
"In the worst case, such turmoil could lead to a replay of the freezing up of financial markets that we witnessed in 2008," Tarullo said in testimony to Congress.
The concern about Europe has been amplified by a continuing lack of clear answers about the so-called flash crash of May 6, in which the Dow plunged hundreds of points in a matter of minutes before quickly rebounding.
Securities and Exchange Commission Chairwoman Mary Schapiro told a congressional panel Thursday that the agency had been unable to pinpoint the cause of the crash. She called the situation "profoundly disappointing and troubling."
The crash appears to have damaged the psyche of some individual investors just as they were beginning to regain confidence in stocks after the painful bear market of 2007-09.
"People are more nervous than they would have been, say, three years ago with this sort of decline because they're picturing what they went through in 2008," said Mark Wilson, a financial planner at the Tarbox Group in Newport Beach. "The basic question is: 'Are we going right back to where we started from? Should we be getting out now in anticipation of going back to those 2008 levels?' "
Wilson said he was cautioning clients not to overreact, pointing out that 10% declines — the classic Wall Street definition of a correction — are normal in the midst of longer bull markets.
Nonetheless, in the week that began the day of the crash, individual investors pulled $14 billion from mutual funds, the first such net withdrawal since March 2009.
The market declines since April 23 have erased $1.8 trillion in value from the overall U.S. stock market, though the Dow remains up 54% in the last 14 months.
"If we were just concerned with the U.S. we could be more optimistic and comfortable — but now we are considering countries where we don't know what the liabilities and risks are," said Victoria Collins, an investment advisor at First Foundation Advisors in Irvine.
Still, most economists are sticking to their forecasts for continued growth, and they are discounting fears of a double-dip recession in the U.S.
"We still think recovery is sustainable," said Kevin Cummins, an economist at UBS Investment Research, which predicts that the economy will expand by about 3% this year.
As Cummins sees it, while U.S. exports may take a hit from Europe's troubles and the appreciating dollar, the nation's stronger job growth should offset that. Plus, there is a silver lining in the flight to safety by global investors: a rally in U.S. Treasuries that has helped push down mortgage rates, which will support the housing market.
But Cummins and other analysts worry that stocks will fall further — and that could very well have sharper knock-on effects on the broader U.S. economy.
If stocks don't rebound soon, the 10% correction "is enough to start troubling consumers and businesses," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi in New York. "If it affects their confidence, it could change their spending."
And in recent days, economic indicators have been mixed, not helping anxious investors who are looking for good news.