Fear is the watchword now in the global financial markets, as one worrisome metric after another is being issued these days and dire warnings about a possible double-dip recession at home and further turmoil in the beleaguered economies of Europe continue to be sounded. Yesterday, in fact, the alarms really went off, as mounting concerns on the Continent, especially in regards to Italy, and fears ahead of this morning's employment report in the United States (see below) helped to throw reason and perspective out the Wall Street window.

First, Europe tumbled, with the leading bourses losing two, three, and four percentage points. Then, after an uninspiring report on first-time jobless claims, in which that figure came in at 400,000, a nominal drop from 401,000 the week before, the futures sold off here, and the day started sharply to the downside. The selling then accelerated when there were no buyers of note to be found, and sporadic attempts to mitigate the carnage failed. Stocks kept falling, with the selling picking up strength as we neared the close. By the time the dust had settled, the market had suffered its worst one-day swoon in two years. In fact, all of the major averages are now in the red for the year, and most are showing losses of more than 10% from their 52-week highs. Such a decline is the definition on Wall Street of a correction. However, we are still a ways from a 20% drop that would traditionally signal a bear market.

Meanwhile, with one technical support after another falling by the wayside, pessimism is logically on the increase. That is not necessarily a bad thing, as stock market bottoms often are reached during periods of massive pessimism, and when panic sets in. We probably are not there yet, but valuations are getting less frothy by the day, so if this is not "the beginning of the end'', as Winston Churchill so famously intoned when he and his countrymen and women were fighting the courageous Battle of Britain in 1940, "it may be the end of the beginning''. We will see. 

As for the damage done yesterday, the Dow Jones Industrial Average, which just the day before was struggling to stay above 12,000, fell 513 points, to close the day at 11,383, while the tech-heavy NASDAQ tumbled 137 points, or 5.1%. The NASDAQ is now lower by 3.6% on the year. The Standard and Poor's 500 Index, meanwhile, dropped 60 points, or 4.8%, and the small-cap Russell 2000 shed 46 points, or 6.0%. All of the Dow stocks fell in price yesterday, with Kraft Foods (KFT - Free Kraft Stock Report), which is splitting into two components and had earlier in the day announced solid earnings, being the last holdout, erasing a nice early gain and succumbing to late selling that pushed it modestly into the red. Major Dow losers yesterday included Caterpillar (CAT - Free Caterpillar Stock Report), DuPont (DD - Free DuPont Stock Report), 3M Companies (MMM - Free 3M Stock Report), and United Technologies (UTX - Free United Technologies Stock Report).

As for the economy along these shores, the news is clearly not good, as one metric after another is telling us in unmistakable language that the economy is slowing and doing so fast. Just this week, for example, we have seen a sharp deceleration in manufacturing, and a lesser slowing in non-manufacturing activity. We have also seen further slippage in the long-troubled housing market, weak personal income growth, and a decline in personal consumption expenditures. Not surprisingly, the economic bears are now throwing around the idea of a double-dip. We think such a reversal is not out of the realm of possibilities at this time, but we still sense that we will skirt such a setback, although the margin for error seems to be getting less by the day.

Now, to the employment situation. Expectations had been for an increase in payrolls of 75,000 in July and an unchanged jobless rate of 9.2%. Data issued several minutes ago showed that non-farm payrolls had jumped by 117,000 last month and that the unemployment rate had fallen to 9.1%. Also, June's payroll gain was revised from 18,000 to 46,000. This positive surprise gave Wall Street something to cheer about and the equity futures, which had been mixed just before the report's release, surged ahead quickly, with the Standard and Poor's 500 Index futures leaping to a gain of more than nine points and the NASDAQ futures climbing by 11 points. Such early responses suggest that we will get a higher opening in less than an hour from now. Is this a new reversal? It is far too soon to tell, but it is at least a start, although we caution that the employment situation is still quite troubled.

At the time of this article's writing, the author had no positions in any of the companies mentioned.