NEW YORK (AP) — Caution returned to Wall Street Thursday as unemployment claims reached a record high and new home sales hit a record low — two glaring signs that the economy is still in a deep slump.
The major stock indexes gave back all of Wednesday's gains, and then some.
The Dow Jones industrial average sank 226 points, or 2.7 percent, while other indicators tumbled more than 3 percent. On Wednesday, stocks had soared on hopes that the government will take bad debt off banks' books.
Investors took a step back Thursday after getting some harsh reminders that it might be a while before the nation's 14-month-old recession ends, even if banks get more aid.
The Labor Department said the number of people continuing to receive unemployment benefits reached a seasonally adjusted 4.78 million week ending Jan. 17 — the highest level on records that go back to 1967. As a proportion of the work force, the total is the highest since August 1983.
Companies across a variety of industries have been slashing their payrolls by the thousands. Starbucks Corp., Eastman Kodak and Allstate Corp. became the latest major employers to announce big job cuts — 7,000 at Starbucks; 3,500 to 4,500 at Kodak; and 1,000 at Allstate.
"It seems like we've gotten through the financial crisis. Now we're dealing with global synchronized recession," said Brian Battle, vice president of trading at Performance Trust Capital Partners in Chicago.
And as more people lose their jobs, fewer of them are buying new homes. The Commerce Department said home sales plunged 14.7 percent to an adjusted annual rate of 331,000 in December — the lowest on records going back to 1963. Earlier this week, the National Association of Realtors said existing home sales posted an unexpected increase last month, but the sales were mostly of foreclosed homes.
"This all began as a housing crisis, and clearly, the housing crisis continues," said Nathan Rowader, director of investments at Forward Management. "Bad housing numbers are not going to encourage anyone to be buying stock."
Investors' mood also darkened after companies from Eastman Kodak Co. to chip maker Qualcomm Inc. reported that profits tumbled the final three months of 2008, and the Commerce Department said orders to U.S. factories for big-ticket manufactured goods fell for the fifth straight month in December.
According to preliminary calculations, the Dow industrials fell 226.44, or 2.70 percent, to 8,149.01.
Broader stock indicators also sank. The S&P 500 index fell 28.95, or 3.31 percent, to 845.14, and the Nasdaq composite index fell 50.50, or 3.24 percent, to 1,507.84.
The S&P was coming off its first four-day winning streak since last November.
The Russell 2000 index of smaller companies fell 19.78, or 4.18 percent, to 453.24.
The number of stocks falling outpaced advancers by 5-to-1 on the New York Stock Exchange. Trading volume came to 1.44 billion shares.
Bond prices sank Thursday after a weaker-than-expected auction of five-year notes. The yield on the benchmark 10-year Treasury note, which moves opposite its price, shot up to 2.87 percent from 2.67 percent late Wednesday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.23 percent from 0.17 percent Wednesday.
The dollar was mixed against other major currencies, while gold prices rose.
Light, sweet crude fell 72 cents to finish at $41.44 a barrel on the New York Mercantile Exchange.
Investors weren't disappointed in all fourth-quarter results — Colgate-Palmolive, for one, said its earnings rose nearly 20 percent because of lower cuts, higher prices and new products. The consumer products company's shares rose $1.37, or 2.2 percent, to $65.22.
Most corporate results, however, were grim.
Eastman Kodak fell $2.08, or 29 percent, to $4.99 after it reported a $137 million fourth-quarter loss on a big drop in sales of both digital and film-based photography products.
Qualcomm fell $1.69, or 4.6 percent, to $35.13 after reporting a steep drop in its earnings and slashed its forecast. The company, one of the world's largest suppliers of chips for mobile phones, has seen demand fall as customers trim inventories.
Allstate fell $6.14, or 20.7 percent, to $23.50 a day after the insurer posted a loss of $1.13 billion for the fourth quarter.
Starbucks was flat at $9.65, after the coffee retailer posted a two-thirds drop in earnings.
Black & Decker Corp. dropped $8.09, or 20.9 percent, to $30.65 after reporting that its fourth-quarter earnings dropped 77 percent. The maker of power tools forecast first-quarter earnings far below what Wall Street had been expected.
Ford Motor Co. said it lost $5.9 billion in the fourth quarter but that it has no plans to seek federal aid unless economic conditions worsen. The second-largest U.S. automaker said it reached an agreement with the United Auto Workers to end the jobs bank in which laid-off workers get most of their pay. The union already agreed to do so with General Motors Corp. and Chrysler LLC.
Ford fell 8 cents, or 3.9 percent, to $1.95.
Overseas, Japan's Nikkei stock average rose 1.79 percent. Britain's FTSE 100 fell 2.45 percent, Germany's DAX index fell 2.01 percent, and France's CAC-40 fell 2.15 percent.