NEW YORK - Wall Street extended its losses yesterday, as a negative ratings outlook on financial and industrial powerhouse General Electric Co. shook an already fragile investor psyche.
Standard & Poor's ratings service lowered its outlook on GE and its GE Capital finance arm to negative from stable. S&P affirmed their Triple-A ratings, but said there is a one-in-three chance they could lose them because of the struggles at GE Capital.
GE shares fell $1.43, or 8.2 percent, to close at $15.96.
At the same time, energy stocks tumbled as oil prices plunged. Crude briefly dropped below $36 a barrel yesterday on worries of a drastic pullback in energy spending, even after a record production cut from OPEC.
"The fear is that if oil does fall down to $25 or $30 a barrel, that could indicate that the economy is even weaker than market perception and that obviously is negative," said Peter Cardillo, chief market economist for Avalon Partners.
Chevron Corp. fell $3.79, or 4.9 percent, to $73.03, while Exxon Mobil Corp. dropped $4.06, or 5 percent, to $77.
Yesterday's news reinforced the belief that the economy's troubles are far from over.
The Dow fell 219.35, or 2.49 percent, to 8,604.99. The Standard & Poor's 500 index fell 19.14, or 2.12 percent, to 885.28, while the Nasdaq composite index fell 26.94, or 1.71 percent, to 1,552.37.
The Russell 2000 index of smaller companies fell 7.42, or 1.52 percent, to 479.17.
Wall Street's sharp decline late yesterday overshadowed some of investors' earlier enthusiasm over a potential economic stimulus package. President-elect Barack Obama's aides are working to assemble a two-year plan that could cost $850 billion and include new jobs, middle-class tax relief, and expanded aid for the poor and the unemployed.
Further weighing on the market were lackluster economic data and mixed corporate earnings reports.
The Labor Department reported that initial jobless claims fell by more than economists anticipated to 554,000 last week.
Meanwhile, a private research group's measure of the economy's health fell again in November and its six-month rate of decline hit the worst level since 1991.
FedEx Corp. reported a 3 percent rise in quarterly earnings, but announced further cost cuts as demand continues to wane. Ingersoll-Rand Co. cut its fourth-quarter earnings forecast by more than half, and motor-home maker Winnebago Industries Inc. swung to a loss.
Discover Financial Services swung to a profit and homebuilder Lennar Corp.'s quarterly loss was smaller than last year's.
In recent weeks, the market has moved away from the wild 300-point swings of September, October and early November, leading some analysts to believe that Wall Street is beginning to show some stability.
But yesterday's decline, which extended a 100-point drop in the Dow on Wednesday, showed how fragile the market still is.
General Motors Corp. was the biggest loser yesterday among the 30 Dow stocks, plunging 16 percent, or 71 cents, to $3.66 as the Bush administration said it was seriously considering "orderly" bankruptcy as a way of dealing with the U.S. auto industry. Ford Motor Co. shares fell 30 cents, or 9.6 percent, to $2.84. Chrysler L.L.C. is not publicly traded.