Oct. 7--They're not buying it.

In the aftermath of the congressional vote Friday for a $700 billion Wall Street bailout package, skeptical investors on Monday sent the Dow Jones industrial average below 10,000 for the first time in four years.

At its lowest point, the Dow plunged more than 800 points, to just over 9525. Stocks rallied during the final 90 minutes of trading amid speculation the Federal Reserve would cut interest rates. The Dow finished down 369.88, or 3.6 percent, at 9955.50.

"The Treasury plan has not convinced the markets the worst is over," said Robert Aliber, a University of Chicago finance professor. "The recession is beginning to hit. You can just sort of smell it."

Bank bailouts in Europe and worries about sluggish growth abroad have helped to depress the U.S. market. Every company in the Dow and all 10 industries in the Standard & Poor's 500 retreated Monday, while Treasury securities and gold prices shot higher.

Monday's late recovery sets the stage for further declines later in the week, said James Bianco, president of Chicago's Bianco Research LLC, a fixed-income research firm.

"Too many people are hanging in, hoping for the best," he said. "For months and months, the stock market did not understand the problems the bond market was having. Finally, they got it."

As a result, it might make little difference if the Fed cuts rates before its scheduled Oct. 29 meeting, Bianco said. Flooding banks with cash "should have slowed down this crisis, and it hasn't," he said. "The confidence problem in this market is that this stuff didn't work."

Bank of America, Citigroup and other banking stocks extended sharp losses. Energy companies such as Chevron and ConocoPhillips also fell Monday, as traders fretted that a protracted recession would cut demand for fuel. Crude oil fell below $90 a barrel for the first time since February.

Meanwhile, the Chicago Board Options Exchange volatility index--known as the "fear index," because it measures ups and downs in the market--closed at a record high. That's fitting, because the broader economy is unlikely to stay as "extremely resilient" as it has so far in the face of financial crisis, said Aliber. "It is giving way."

In addition to rising unemployment, he said, watch for empty desks at colleges, empty seats on airplanes and empty rooms at hotels. The recession will be "protracted," he warned. "It will hit soon."

gburns@tribune.com

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