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Dow Drops Another 500 Points, Bernake Says Crisis Isn’t Over Yet

by Doug Mataconis @ 4:37 pm on October 7, 2008.

There was a time when the stock market would follow a 300 point drop like the one we had yesterday with a fairly good sized uptick.

Not anymore.

Today, traders followed up a day that could have been a lot worse with one that actually was alot worse:

NEW YORK (CNNMoney.com) — Wall Street’s drubbing continued Tuesday, with a 500-point loss bringing the Dow’s two-day scalding to nearly 900 points, as the Federal Reserve’s plan to loosen credit markets failed to counter investor pessimism about the government’s ability to rescue the markets.

Fed Chairman Ben Bernanke’s dour economic outlook in an afternoon speech added to the day’s weakness. And a report showed consumer borrowing in August fell for the first time since January 1998.

According to early tallies, the Dow Jones industrial average (INDU) lost 508 points or 5.1%, closing at lowest point since Sept. 30, 2003.

The Standard & Poor’s 500 (SPX) index fell 5.7% and closed below 1,000 for the first time since Aug. 27, 2003. The Nasdaq composite (COMP) lost 5.8% and ended at its lowest point since Aug. 18, 2003.

“There is this feeling that no matter what is done, it won’t be enough, ” said Darin Pope, chief investment officer at United Advisors of Secaucus, N.J.

Today’s selloff came largely in response to Fed Chairman Ben Bernake’s statement that the crisis is likely to hurt economic growth well into next year:

NEW YORK (CNNMoney.com) — Federal Reserve Chairman Ben Bernanke predicted that the global financial markets crisis is likely to restrain the economy well into next year and signaled that the Fed may be getting ready to cut interest rates.

But he said he believes the unprecedented steps taken to have the Treasury Department and the Fed intervene in financial markets were done in time to prevent more expensive and permanent damage to the nation’s leading financial institutions.

In a speech before the National Association of Business Economics in Washington on Tuesday, Bernanke said the threat of inflation has receded recently, while the economy has continued to weaken. This could be interpreted as a sign that the central bank might be preparing to lower its key fed funds rate soon.

“Overall, the combination of the incoming data and recent financial developments suggests that the outlook for economic growth has worsened and that the downside risks to growth have increased,” he said.

“In light of these developments, the Federal Reserve will need to consider whether the current stance of policy remains appropriate,” he added.

In other words, get ready for the Fed to prime the pump in a big way, and if that doesn’t work, we’re really screwed.

Gee, what do you think they’ll be talking about at the debate tonight ?