S&P Plunges Below 1000

16:20 ET
S&P 500 Plunges Below 1000
Dow -508.39 at 9447.11, Nasdaq -108.08 at 1754.88, S&P -60.66 at 996.23
[BRIEFING.COM] Tuesday marked another ugly session for stock investors as a weak outlook from Bank of America (BAC 23.77, -8.45) and cautious comments from Fed Chairman Ben Bernanke overshadowed a Federal Reserve plan to improve liquidity in short-term corporate borrowing.

Stocks rose 1.5% at the open on the Fed's plan to shore up short-term corporate borrowing, but overall economic concerns quickly sank stocks. In the end, the S&P 500 plunged 5.7%, settling at its worst levels, to a new five-year low in broad-based weakness. All ten economic sectors posted a loss, with notable declines in financials (-11.5%), tech (-6.1%) and consumer discretionary (-5.7%).

Fed Chairman Bernanke gave the market little to cheer about in a speech at the National Association for Business Economics annual meeting. He said that economic activity is likely to be subdued through this year and into 2009 and increases in financial market turmoil may extend the period of weak economic performance.

He did leave the door open for a FOMC rate cut on Oct. 29, although fed funds futures had already priced in a cut of at least 50 basis points.

Bank of America, the second largest U.S. financial firm by market cap after JPMorgan Chase (JPM 39.86, -4.14), fell 26% after preannouncing disappointing third quarter earnings and giving a dour outlook regarding the state of the economy. In an attempt to shore up capital in the face of current economic conditions, BofA is cutting its quarterly dividend by 50% to $0.32 and plans to raise $10 billion in a common stock offering.

CNBC reported the common stock offering was likely to be priced at less than $25 per share. The notion that BofA would have to sell stock at a more than 22% discount added to overall investor unease, especially in the financial sector.

The commercial paper market, which many U.S. companies rely on for short-term borrowing, has been under pressure as investors flocked to the safety of Treasuries and away from money market funds. As a result, many companies found it difficult to issue commercial paper, or had to pay a high cost.

In an attempt to bring down the cost of commercial paper costs and improve liquidity, the Fed announced this morning that it created a Commercial Paper Funding Facility, which will provide a liquidity backstop for the strained commercial paper market. The Fed will purchase three-month unsecured and asset-backed commercial paper from eligible issuers. The Fed said it has no limit to how much commercial paper it can buy.

Separately, commodities (+1.0%) staged a modest recovery effort from Monday's 5.0% drop, aided by a 0.8% decline in the dollar. Crude prices rose 2.3% to $89.80 per barrel.

The S&P 500's loss marked its fifth consecutive decline -- its longest losing streak since January. The index has fallen 14.5% over the past five sessions and is down 32.2% this year.

..Nasdaq 100 -5.8%. ..S&P Midcap 400 -5.4%. ..Russell 2000 -6.2%.