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Stocks plunge after market's opening

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So much for the Fed-inspired rally. Investors' attention has turned back to the weak economy — and that's bad news for stocks.

The Dow Jones industrial average fell 413 points, or 3.7 percent, to 10,827, in morning trading Wednesday. That erased nearly all of its 429-point gain from Tuesday, when the Federal Reserve pledged to keep its key interest rate at nearly zero into 2013.

Gold rose $30 per ounce to $1,773 as money poured into investments considered safe. The 10-year Treasury note, which has also served as a safe haven, also rose. Its yield fell to 2.14 percent from 2.26 percent late Tuesday. It had reached a record low of 2.03 percent on Tuesday. A bond's yield falls when its price rises.

"Investors are still trying to discern whether it's going to be a double-dip recession or just a slowdown," said Oliver Pursche, president of Gary Goldberg Financial Services.

There are still significant challenges ahead for countries around the globe.

Besides weak U.S. economic growth, investors are worried about Europe's debt troubles and rising inflation in China and slower growth in other less-developed countries.

Pursche is optimistic that global growth will improve, but he still expects markets to remain volatile until "there's a recognition that the probability of a broad-based global second round of recession is very unlikely."

Financial stocks led the market lower. Bank of New York Mellon Corp. fell 3.7 percent after it said it will cut 1,500 jobs, or about 3 percent of its global workforce, to lower costs.

As a group, the financial stocks in the S&P 500 fell 4.5 percent, the biggest decline of the 10 industries that make up the index.

The overall S&P 500 index fell 45, or 3.8 percent, to 1,128. The Nasdaq composite index fell 90, or 3.6 percent, to 2,391.

On Tuesday, the Dow's point gain was its tenth-best in history. The Dow swung 600 points, from a 205 point decline to the 429 point gain in the hour or so after the Fed said it considered "policy tools" to help the economy.

But the central bank also gave a dim outlook on the economy's strength in its Tuesday statement. It said growth this year has been "considerably slower" than it expected and that it anticipates a slower pace of recovery over coming quarters.

As recently as June, the Fed said that the slowing recovery was due to temporary factors, such as high gasoline prices and the disruption to manufacturers following Japan's March earthquake. But on Tuesday, the central bank acknowledged those factors were only part of the reason that the economy grew at its slowest pace in the first half of this year since the recession ended in June 2009.

The statement "was essentially a full admission that the Fed had not fully gotten their arms around the permanence to the weak trends in the economy," William O'Donnell, head of U.S. Treasury strategy at RBS Securities, wrote in a report.

Economists have become more pessimistic about the U.S. recovery in the last month. The manufacturing and services industries barely grew in July. Consumers cut their spending in June for the first time in nearly two years. Job growth was better than economists expected in July, but the 117,000 jobs created were not nearly enough to pull the unemployment rate below 9 percent.

Concerns about the global economy have overshadowed what has been another strong reporting season for companies' earnings.

Macy's Inc. said its net income last quarter rose 64 percent from a year earlier. The parent of the Macy's and Blomingdale's retail stores credited stronger sales, particularly from its online sites. Its stock was flat amid the market's drop.

Polo Ralph Lauren Corp. said its net income rose 52 percent last quarter, and it raised its forecast for revenue this fiscal year. Its stock rose 0.8 percent.

Cree Inc., a maker of products used in light-emitting diodes, or LEDs, rose 1.1 percent after it reported earnings late Tuesday that were better than analysts expected.

The Walt Disney Co. said late Tuesday that its net income rose 11 percent last quarter. Stronger revenue from its ESPN sports television network and theme parks made up for lackluster box-office results. It fell 5 percent.

Capital One Financial Corp. rose 1.3 percent after it said it will buy the U.S. credit card arm of Britain's HSBC for a premium of about $2.6 billion.

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