Stocks tumbled Wednesday as investors saw a surge in oil prices and disappointing earnings from Morgan Stanley as a reason to collect profits from gains of the last month.
The Dow Jones industrial average dropped 135 points, and all three major indexes saw their biggest losses since early August.
The latest spike in oil prices was big enough to spur worries that consumer spending could decrease and oil could surpass $50 per barrel, although stocks had managed to rally in recent weeks despite a steady climb in prices. A barrel of light crude was quoted at $48.35, up $1.59, on the New York Mercantile Exchange.
Investors also were nervous about third-quarter earnings after Morgan Stanley missed Wall Street expectations by a wide margin, and fast food chain Wendy's International Inc. posted a profit warning.
Broader stock indicators also were lower. The Standard & Poor's 500 index was down 15.74, or 1.4 percent, at 1,113.56, its lowest close since Sept. 1. The Nasdaq composite index dropped 35.47, or 1.8 percent, to 1,885.71, the lowest close for the Nasdaq since Sept. 9.
It was the biggest one-day drop for all of the major indexes since Aug. 6.
The run on oil was spurred by a new government report which said the nation's supply of crude fell by 9.1-million barrels last week, a wider decline than analysts had expected after a 7.1-million barrel drop the week before.
"The oil situation is interesting, in that when it started going up a few weeks ago, the market continued to rally. I think the drop today may have more to do with psychology than any actual impact from oil," said Richard Dickson, senior market strategist at Lowry's Research Reports.
Morgan Stanley's troubles also weighed heavily on Wall Street, which had seen positive earnings earlier in the week from Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. Morgan Stanley posted a 34 percent drop in third-quarter profits, missing Wall Street forecasts by 17 cents per share. Shares of Morgan Stanley tumbled $3.66 to $48.72.
Wendy's slid $2.16 to $33.34 after the fast-food chain cut its 2004 profit forecast due to hurricane damages and a resulting drop in business in Florida, along with high beef prices. Several Wall Street firms lowered their ratings of Wendy's. The news also sent rival McDonald's Corp. down 76 cents to $27.01, as investors feared similar problems to Wendy's would plague it as well.