Bad day on Wall Street*

Let us count the ways - jobless claims remain elevated, Spanish banks need up to $78 billion to absorb losses, manufacturing activity in China contracts, and Goldman Sachs issues a bearish forecast for stocks. While none of this qualifies as horrible news, it fits into the prevailing narrative about sluggish world growth and how the European mess might make things worse. That narrative was reinforced after the market closed and Moody's was ready to announce ratings downgrades for a number of major banks around the world (the downgrades had been rumored throughout the session). At the close, the Dow was down 250 points, to 12,573. It's worth nothing that the markets had seen a nice run-up in the past three weeks, and so this pullback isn't unexpected. Meanwhile, the commodity markets continue to tumble. Oil futures are now trading at $78.20 a barrel (that's down almost 10 percent this month). This will explain why you might be paying under $4 a gallon for gas - good news perhaps, but also reflective of concerns about the economy.

Chart: NYT

*Update: Moody's cut the credit ratings of 15 large financial firms. Citigroup and Bank of America are now rated only two notches above junk. From the NYT:

The downgrades are a serious blow for the banking industry, which is already dealing with the European sovereign debt crisis, a weak American economy and new regulations. Banks are particularly sensitive to downgrades because they rely on the confidence of creditors and big customers. A lower rating could push up their borrowing costs. It could also crimp core business, like derivatives. In the face of a downgrade, some customers may choose to transfer their business from the lowest-rated banks to higher-rated ones. Executives from big banks will now try and convince creditors and large customers that Moody's has overreacted.