Once more, gloom is descending over Wall Street.
After rallying for a few hopeful months this spring, the stock market is sinking to its lowest level in years. Cracks are reappearing in the credit markets. The price of oil is rising from one record to another. And the analysts who seemed so confident a few weeks ago are predicting another round of steep losses at big financial companies such as Citigroup Inc..
Yesterday, the Dow Jones industrial average tumbled 358 points, its steepest decline in nearly three weeks. The blue-chip index closed at 11,453.42, its lowest since September 2006. One longtime member of the Dow industrials, General Motors Corp., plunged to its lowest since 1974.
Downgrades in the financial industry and fear over the deteriorating health of the auto sector were the immediate causes of yesterday's sell-off. But the abrupt reversal in the markets - only five weeks ago the Dow was above 13,000 - reflects the realization among investors that the troubles afflicting the economy might be worse than initially feared.
While many regarded the Bear Stearns Cos. implosion in March as the moment of maximum pessimism in the financial markets, some analysts say bigger problems lie ahead for the broader economy.
The price of oil has skyrocketed. Yesterday, it gained $5 a barrel and briefly rose above $140 for the first time before settling at $139.64.
The price rise came after the head of OPEC predicted that the price of a barrel of crude could rise well over $150 this year and Libya said it might cut oil production.
That increases the odds that gasoline prices, which crossed a nationwide average of $4 a gallon weeks ago, will extend their advance and that goods and services across the economy will get ever more expensive.
The Federal Reserve, worried inflation will accelerate, strongly suggested this week that its long campaign of cutting interest rates was over. Americans feel worse about their economic prospects than at any time in the past 40 years, as measured by the Conference Board.
"Most analysts were looking for the economy and corporate earnings to rebound strongly in the second half of the year," said Bruce A. Bittles, who oversees investment strategy at Robert W. Baird & Co. "That certainly does not appear to be the case."
For some companies, the pessimistic turn has been punishing. GM fell 11 percent after its stock was downgraded yesterday on speculation that auto sales would suffer from high oil prices. The closing price of GM, $11.43, was the company's lowest in 34 years. Chrysler, which is now privately held, was forced to deny rumors that the company was considering filing for bankruptcy.
Financial companies tumbled after Goldman Sachs predicted that they would face a new batch of credit-related hurdles. Shares of Citigroup, stamped with a "sell" rating by Goldman, fell 6.3 percent to $17.67 a share, the lowest price since the company was formed in a 1998 merger.
The Standard & Poor's 500-stock index slipped 2.9 percent, to 1,283.15, just above its low for the year. All 10 industry groups in the S&P; 500 fell at least 1 percent. The Nasdaq composite index, which lost 3.3 percent, took its biggest tumble since January.
All three major stock indexes are now down more than 12 percent for the year.
The pain hit financial firms across the board. Lehman Bros. dropped 8.4 percent, and Bank of America lost 6.8 percent after announcing it would lay off 7,500 workers. Goldman itself received a downgrade from analysts at Wachovia, who said the investment banking and securities firm faced a poor outlook over the summer. Goldman shares closed down 4 percent at $176.26.
A closely watched measure of expected volatility in stocks jumped 13 percent to its highest level since March. The 24-stock KBW Bank Index fell to its lowest level in almost a decade.
Weaknesses also appeared in the credit market. Spreads on credit default swaps have widened substantially in the last month, as investors feel less confident that Wall Street's marquee names will honor their debt obligations.
Some analysts said that the renewed anxieties about investment banks stemmed from a feeling that the Fed has done all it can do to quell the crisis.
"Most of us were rooting for the Fed to save us by lowering interest rates and providing liquidity," said investment strategist Edward Yardeni. "They did that, and we still have a significant problem in the credit system."
In recent weeks, the price of some mortgage-backed securities have slid back to their low levels of March as default rates on home loans continue to worsen, said Donald Brownstein, chief executive of Structured Portfolio Management, a hedge fund based in Stamford, Conn.
"I don't think that there are many souls out there who think that we are out of the woods in terms of housing prices," Brownstein said. "And since that is such a big, big part of the picture, it's still not a pretty picture."
The Associated Press contributed to this article.