As the market concludes one of its worst weeks ever, attention shifts to Tuesday's Fed meeting.
The stock market ended one of its worst weeks in history on Friday with all eyes focused on Tuesday's meeting of Federal Reserve policymakers in Washington.
The Dow Jones Industrial Average tumbled 207.87, or 2.1 percent, to 9,823.41. For the week, the Dow lost a record 821.21, eclipsing the 805.71 the blue chips lost during the week ended April 14, 2000.
The Nasdaq Composite Index dropped 49.80 points, or 2.6 percent, to 1,890.91, and was off 7.9 percent for the week. The technology-heavy index fell below 2,000 this week for the first time since late 1998 and is down 62.5 percent from its March 2000 high. This was its worst weekly showing since December, when it fell more than 8 percent in two separate weeks.
The S&P 500 index fell 23.03 points, or 2 percent, to 1,150.53, down 6.7 percent for the week. It is now off 24.7 percent from its March 2000 high.
The Dow is still the only major index that has not dropped 20 percent or more from its peak into what many on Wall Street define as bear market territory. But it is getting closer by the day. Its decline from its January 2000 peak is now 16.2 percent.
Friday marked the third sharp decline this week, and hopes have faded among analysts that the markets and economy will snap back quickly. But the Fed, with its ability to cut short-term interest rates, still has the best weapon at hand to engineer a rebound, they say.
Slowing economic growth in the United States, despite a few positive signals, and sharply declining corporate earnings are weighing on stocks. The financial and political crisis in Japan, the world's second largest economy, is threatening to become a drag on global economic growth.
Despite a likely Fed rate cut Tuesday that would be the third since January, and a federal tax cut in the works, investors expect no recovery in the economy or corporate earnings for the rest of the year, said Hugh Johnson, chief investment officer at the First Albany Corp. "That's very troubling," he said.
Douglas R. Cliggott, chief equity strategist at J.P. Morgan, said the investors he talks to around the country are also becoming pessimistic about the longer term. Instead of just wondering whether there will be a recession or how soon to jump back into stocks, they are questioning whether earnings growth will again be as strong as in 1999 and most of 2000.
Analysts' current earnings forecasts for the companies in the S&P 500 index are for declines of 6.3 percent in the first quarter and 4.1 percent in the second quarter, a sharp reversal from earlier forecasts that predicted 5 percent growth in each quarter.
Many investors appear to expect a cut of three-quarters of a percentage point by the Fed in its benchmark federal funds rate, the overnight rate on loans between banks. Many analysts, however, still think the Fed will cut rates by one-half of a percentage point.
Investors want the Fed to cut interest rates deeply and quickly to turn the economy around and make stocks attractive. But even if the Fed cuts rates by only half a point, it will be Alan Greenspan's fastest series of cuts since he became Fed chairman in 1987.
Trading was volatile Friday in part, some traders said, because it was "triple witching" day, the day on which a broad variety of options and futures expire. These expirations added to trading, pushing the volume on the New York Stock Exchange to 1.5-billion shares, well above the 1.1-billion daily average for the past year.
Investors, given a plate full of mixed economic news Friday, found no reason to change their downbeat mood. Before the market opened, the government reported that producer prices for finished goods rose just 0.1 percent in February, while the core rate, excluding food and energy, declined 0.3 percent. This inflation performance was surprisingly good, especially after the 1.1 percent jump in overall producer prices in January.
At the same time, the Federal Reserve reported industrial production declined 0.6 percent in February, reflecting the sharp slowdown in manufacturing. Such signs of low inflation and a weakening economy give the Fed more room to ease rates.
But an initial reading of consumer confidence in March showed a small upturn, according to a study by the University of Michigan. And while new home construction fell 0.4 percent, it remained at a high level. This data led some to worry about how quickly the Fed will ease up.
_ Information from the New York Times and Associated Press was used in this report.