Stocks and interest rates tumbled Wednesday as investors around the world took a bleaker view of the U.S. economy.
The Dow Jones industrial average fell more than 220 points and all the major indexes fell more than 2 percent. The yield on the Treasury's 10-year note fell to its lowest level since March 2009 as investors sought the safety of government securities.
Companies across a wide range of industries dropped Wednesday. Only 345 stocks rose on the New York Stock Exchange, while 2,613 fell, a sign that investors expect all businesses to suffer if the economy continues to weaken.
Investors' gloom deepened a day after the Federal Reserve said it would begin buying government bonds as a way to stimulate the economy. Stocks began their plunge in Japan, where the Nikkei stock average fell 2.7 percent, and heavy selling followed in Europe and then the U.S.
Stock traders tend to buy and sell based on their expectations for what business will be like in six to nine months. The problem for investors is that economic data has been so muddled lately that they have no sense of whether the recovery will hold.
"Uncertainty, uncertainty, uncertainty," was the way that Javier Perez-Santalla, managing director for futures and foreign exchange at the institutional brokerage firm Dinosaur Group, described the mood in the market.
"Everyone is scratching their heads, saying 'which way?'" Perez-Santalla said. "We're kind of stuck in this no man's land, where we're damned if we do, damned if we don't."
The Fed said Tuesday it will start buying government bonds with money it gets from the maturing mortgage-backed bonds that it bought during the recession. The goal is to try to cut interest rates on mortgages and corporate loans and in turn increase lending and help the economy grow faster.
But the Fed's moves were expected to be quite small in comparison to what the economy needs. And many investors were selling because the debt purchases would have only a limited impact on the economy.
In midday trading, the Dow Jones industrial average dropped 222.20, or 2.1 percent, to 10,422.58. The Standard & Poor's 500 index fell 27.71, or 2.5 percent, to 1,093.35.
The S&P 500 slipped below 1,100, a key psychological level. Falling and holding below that level could lead to more selling as computer-driven trading sets in.
The Nasdaq composite index fell 63.87, or 2.8 percent, to 2,213.30. The Nasdaq tends to have the biggest losses when stocks are falling sharply because many of its component companies are smaller businesses that struggle the most in a weak economy.
Trading volume was again light on the NYSE, at 387.6 million shares. Trading has been particularly slow, even by summer standards in recent days as uncertainty about the economy led many investors to exit the market completely. Low volume also can exaggerate swings in the market.
The Chicago Board Options Exchange's Volatility Index rose 15.5 percent. The VIX is known as the market's fear gauge because a rise signals traders are expecting more drops in stocks.
The yield on the 10-year Treasury note, which moves opposite its price, fell to 2.72 percent from 2.77 percent late Tuesday. Interest rates are often set based on the yield of 10-year Treasurys.
The 10-year yield is at levels not touched since late March 2009 just weeks after recession worries sent the stock market to a 12-year low.
Investors were willing to take a lower return from Treasurys in exchange for the safety of government debt.
"In this environment of uncertainty, you're looking at increasing and decreasing risk," said David Roda, CEO of Road Asset Management. "When people get scared, they buy safer assets."
Britain's FTSE 100 fell 2.4 percent, Germany's DAX index dropped 2.1 percent, and France's CAC-40 fell 2.7 percent. Japan's Nikkei stock average dropped 2.7 percent.
Economic reports in recent months, including key measures on gross domestic product and employment, have pointed to a slowing recovery in the U.S. Opinions are mixed about whether the economy could fall back into recession. A report Wednesday showed the U.S. trade deficit widened in June to its highest level in 20 months as exports dipped. Falling exports are discouraging because they mean U.S. manufacturers could be slowing down. Early this year, manufacturing showed the most consistent signs of recovery.
Stocks will struggle to rally further until some of the uncertainty is removed about the strength of the economy and how government policy could affect companies, said Duncan Richardson, chief equity investment officer of Eaton Vance.
"What's lacking is confidence and no one can have confidence in an uncertain world," Richardson said. There has been a "huge reluctance to reinvest in businesses because of uncertainty."
Companies are hesitant to hire new workers, buy new equipment or acquire new businesses to grow operations until there is more confidence, he said.
Weak economic reports have stood in contrast to upbeat earnings, which powered stocks higher throughout July. Strong earnings and optimistic outlooks from companies have continued in recent weeks. Yet much of those profits have been driven higher because companies have slashed their work forces. That may not be sustainable.
On Wednesday, the healthy earnings reports continued.
Walt Disney Co. was helped by its ESPN television station and its movie studio, which produced hits like "Toy Story 3" during the quarter. Macy's Inc. raised its profit outlook as it carves out new market share against its rivals.
Macy's rose 95 cents, or 4.9 percent, to $20.33. Disney fell 85 cents, or 2.4 percent, to $34.44.