Gripped by fear of a new recession, the stock market suffered its worst day Thursday since the financial crisis in the fall of 2008, the markets are definitely gripped by gear of a new recession The Dow Jones industrial average fell more than 500 points, its ninth-steepest decline.

The sell-off wiped out the Dow’sThe remaining gains for 2011 were wiped out. It put the Dow and broader stock indexes into what investors call a correction — down 10 percent from their highs in the spring.
“We are continuing to be bombarded by worries about the global economy,” said Bill Stone, the chief investment strategist for PNC Financial.

The day was reminiscent of the wild swings across the financial markets that defined the financial crisis in September and October three years ago. Gold prices briefly hit a record high. Oil fell even more than stocks — 6 percent, or $5.30 a barrel. And frightened investors were so desperate to get into some government bonds that they were willing accept almost no return on their money.

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It was the most alarming day yet in the almost uninterrupted selling that has swept Wall Street for two weeks. The Dow has lost more than 1,300 points, or 10.5 percent and $1.9 trillion has disappeard in market value.

For the day, the Dow closed down 512.76 points, at 11,383.68. It was the steepest point decline since Dec. 1, 2008.

In percentage terms, the decline of 4.3 percent does not rank among the worst. On Black Monday in 1987, for example, the Dow fell 22 percent. The decline on Thursday was the ninth worst for the Dow.

Two weeks ago, investors appeared worried about the deadlocked negotiations in Washington over raising the ceiling on government debt. As soon as the ceiling was raised, investors focused on the economy, and the selling accelerated.

On Thursday, growing fear about the weakening U.S. economy was joined by concern in Europe that the troubled economies of Italy and Spain might need help from the European Union.

The bottom line is traders are becoming convinced that we’re facing a prolonged and severe recession, and there’s nothing any government on Earth can do to stop it. In that context, selling stocks or “reducing exposure” as they say on Wall Street, is quite rational.

Trying to “call the bottom” by going all in at once is a fool’s game. Be patient, be calm and tune out the panic. In a market this volatile, prudence is the only rational strategy available.

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