A late afternoon barrage of selling sent the Dow Jones industrials tumbling 514 points as weak corporate earnings stoked fears that the government's financial intervention won't keep global economies out of recession.
Poor earnings from large companies in disparate sectors – Wachovia, Boeing and Merck & Co. – illustrated how wide the downturn had spread. One bright spot was McDonald's Corp., where third-quarter profits rose thanks to the strength of its low-priced meals.
Even with the aggressive steps the government has already taken, Treasury Secretary Henry Paulson told interviewer Charlie Rose Tuesday, “Clearly, we're going to have a number of difficult months ahead of us in terms of the real economy.”
The Dow lost 5.7 percent. Oil prices hit lows last seen in June 2007, trading below $67 a barrel on worries about weakening demand.
Stock markets around the world veered sharply lower Wednesday.
World leaders will gather in Washington on Nov. 15 to discuss the meltdown. A senior administration official said Wednesday that the forum will be the first in a series of international meetings to discuss what economists predict could be a long and deep downturn.
For many U.S. companies, the damage has begun.
Airplane maker Boeing reported its earnings slumped 38 percent as a strike halted production of commercial jets.
Merck & Co. said it will slash 7,200 jobs as part of a new restructuring program. The drugmaker's third-quarter profit plunged 28 percent, partly due to flat sales. Earnings also fell at paper company Kimberly-Clark Corp., insurer WellPoint Inc. and drug developer Wyeth.
“We are going into what is very clearly a recession mode,” Blake Jorgensen, Yahoo's chief financial officer, said in a Tuesday interview. Yahoo is slashing 1,500 jobs while it braces for a deep downturn likely to extend well into 2009.
“Right now we have 9 million Americans out of work – that's up from 6 million this time last year – and to every trader on the floor, to every trader upstairs, that's the most important number” because consumer spending makes up two-thirds of the economy, said Alan Valdes, vice president of trading firm Hillard and Lyons.
The official arbiter of recessions, the nonpartisan National Bureau of Economic Research, has not called the current downturn a recession.
Third-quarter profits at budget-friendly McDonald's rose 11 percent. Same-store sales, or sales at stores open at least a year, were notably strong in the third quarter, rising 7.1 percent globally and 4.7 percent in the U.S.
McDonald's is “recession-resistant,” Chief Executive Jim Skinner said on a conference call, adding that it is “operating from a position of strength.”
Credit markets are showing some signs of a thaw. Yields on Treasury bills and the interest rates banks charge each other have both fallen back to late-September levels. Bank-to-bank lending rates fell sharply overnight. The London Interbank Offered Rate, or Libor, on three-month loans in dollars fell to 3.54 percent from 3.83 percent, dropping for an eighth straight day. Libor is important because many mortgage and credit card rates are pegged to it and it's a good barometer of banks' willingness to lend.
Despite declining rates, the volume of loans remained weak.
“We're making slow progress and confidence is returning but we're still not there yet,” said Christopher Cordaro, chief investment officer at RegentAtlantic Capital LLC in Chatham, N.J.