The market had a high-flying open for an hour or so, with the Dow gaining over 80 points. But after a volatile day the three major indexes gave up all their gains by late afternoon and continued to plunge.

MARKET INDEX WRAP, WEDNESDAY, OCT. 21:

The Dow closed down 92.12 points or 0.92% to 9949.36, its second decline in a row.

DOW JONES INDUSTRIAL AVERAGE:

The Standard & Poor's 500 closed down 9.66 or 0.89% to 1081.40, with a decline of 1.9% for financials (some downgrades of big banks) and 1.5% for consumer discretionary companies (the Fed reported a soft consumer sector). The S&P 500 was as high as 1,101 intraday, once again dancing near 1100 only to fall back, which encouraged selling.

S&P 500:

The Nasdaq Composite got the gold star, closing down 12.74 or only 0.59% to 2150.73. The index got a small push from Yahoo's earnings report.

NASDAQ:

Stocks actually spent much of Wednesday in the green as Morgan Stanley and Yahoo reported hopeful earnings. Then . . . the market changed course after a banking analyst cut his investment rating on Wells Fargo to sell from hold, saying the quality of its earnings was poor. (We hope he's happy.)

S&P 500 INTRADAY:

The downgrade triggered a broad sell-off that took down a number of other financials. Consumer companies faded too on the Beige Book's report, including Walmart, who in addition happened to announce massive discounts for the Christmas season:

WALMART:

The consensus seems to be: Don't be surprised if there's a pullback or at least a plateau, especially when you consider the relative number of decliners to advancers.

Giant investment banker Morgan Stanley (MS) helped nudge the market up momentarily Wednesday with a better-than expected third-quarter profit. Like its rival JPMorgan Chase last week, its results were helped by strong fixed-income sales and trading revenue; Morgan also pointed to improved results from investment banking underwriting and from the bank's joint wealth management venture with Citigroup's brokerage Smith Barney. The bank ended three straight losing quarters with a profit of $757 million or 38 cents a share on revenue of $8.7 billion, compared with last year's $8.15 billion or $7.38 (that quarter had a large one-time gain), beating analyst expectations by 11 cents. In last year's fourth quarter the bank sustained a loss, causing Morgan to seek a $9 billion transfusion from Mitsubishi UFJ and make the belated decision to sharply reduce excessive risk and stick to its knitting.

It may have overdone the "safety first" response, but now the bank is catching up to rivals. (Highly risk-tolerant Goldman Sachs, for example, had Q3 profit that nearly quadrupled year-over-year; now its quarter-to-quarter revenue is slowing.) Some shareholders probably weren't delirious to learn that Morgan Stanley set aside some $5 billion for year-end bonuses during the third quarter, bringing its total for the year to $10.9 billion. Its shares gained 4.9%, ending just in new territory.

MORGAN STANLEY:

The Fed's Beige Book was released today. The Beige Book comes out about two weeks before Federal Open Market Committee policy meetings and describes conditions in the 12 Fed districts; this one anticipates the meeting on November 3-4. Among other things it told us that since the last report, most districts showed either stabilization or modest improvements in many sectors, "albeit often from depressed levels." Gains in economic activity generally outnumbered declines. Leading the improvement were more positive reports in residential real estate and manufacturing. Consumer spending and nonfinancial services were mixed. Commercial real estate was reported to be one of the weakest sectors, but we were warned about that a long time ago.

COMMERCIAL VS. RESIDENTIAL REAL ESTATE PRICES:

Expectations for holiday sales were mixed. Chicago expects improved sales, Philadelphia and Atlanta don't. Labor market conditions were generally weak or mixed across Fed Districts, which was seconded by the Labor Department's jobs report elsewhere in today's column. While employment activity is soft, some Districts had a slowdown in layoffs and others indicated signs of improvement in contract and temporary employment. Wage and price pressures were generally described as "subdued," as was inflation, except for some commodities.

Overall, the Beige Book showed us a still-sluggish economy that is sloooowly moving toward recovery: The consumer sector isn't great, but it's stable. Housing is improving from extremely low levels of activity, but commercial real estate is still declining. The biggest positive was the moderate rebound in manufacturing.

With few signs of inflation so far, the Fed will probably keep interest rates in the sub-basement for the time being. Or will try to at any rate, because crude's steep recent rise — crude oil is a keystone manufacturing feedstock, remember — must eventually find its way into the price of many, many producer and especially consumer items. Along with my export obsession I make this point quite frequently, but Ben Bernanke hardly ever returns my calls.

Definitely not a high-flyer, American Airlines's parent, AMR Corp. (AMR) said Wednesday that it lost $359 million in the third quarter, well under Wall Street's expectations. Per-share it came to $1.26 compared with a gain of $31 million or 12 cents in Q3008 that was bolstered by a big one-time sale; without one-off items, it would have been a loss of 93 cents. Either way it fell well short of analyst expectations of an 86-cent loss. Year-over-year operating revenue fell more than 20% to $5.13 billion, and the company's average fare dropped by more than 16%. The wider-than-expected loss occurred despite a nearly-47% drop in AMR's third-quarter fuel bill and the irritating fees on its checked baggage. Traffic stayed down sharply, especially among higher-fare-paying business travelers, on whom American is more dependent than most. It filled many of its planes instead with leisure travelers, the drawback being that vacationers generally sit in coach and pay rather lower fares.

But even for hoi polloi, flying is one of those very discretionary items that are among the first to be jettisoned in a tough economy. Ask yourself how many marginal cousins' weddings and nephews' bar mitzvahs in New Jersey or Los Angeles you've decided to forego in the last 18 months or so? Three? Maybe four? The economy continues to dampen the demand for air travel and AMR expects capacity to decline by 5.5% in the fourth quarter and 7.5% for the year. On the upside, it raised about $5 billion in liquidity during the recent quarter, giving it money to cover operations in the short term and leading analysts to concur that it probably won't go broke this winter. The stock didn't have a good day and is down about 45% since January.

AMR CORP.:

They were much happier over at Wells Fargo & Co. (WFC) with a $2.64 billion third-quarter profit or 56 cents a share after paying preferred dividends. That's up from $1.64 billion or 49 cents in the year-ago quarter and well over expectations of 37 cents. The firm's retail banking operations, including the businesses it acquired when it bought Wachovia, offset heavy and rising loan losses, some $5.1 billion or about 2.5% of its loan portfolio, up from $2 billion a year ago and $4.4 billion in the previous quarter; about one-third came from Wachovia. Past-due but not-written-off-yet loans totaled a scary $23.5 billion, nearly four times higher than in Q32008 and 28% above the previous quarter.

Loan losses were nicely offset by the bank's traditional banking business, which includes the big mortgage operation that Wachovia brought with it last year: The bank reported lending a tidy $96 billion in new residential mortgages. Net interest income, or what the bank makes on loans and other assets, rose 43% percent to $5.57 billion after setting aside $6.1 billion to cover credit losses. Noninterest income, from fees and other charges, more than tripled from a year ago to $10.78 billion with mortgage banking income jumping to $3.07 billion from $892 million. Total revenue more than doubled from the same period last year to $22.47 billion, but was roughly flat with the second quarter. Wells Fargo is practically synonymous with conservative, but investors were still worried about the deteriorating credit quality in the loan portfolio it acquired from Wachovia. Now it looks, so far, like the acquisition is adding solidly to Wells Fargo's growth and earnings. Credit cards make up a very small portion of the bank's loan portfolio, only about 3%; the bank expects those losses to peak in 2010. Wells traded higher for a while but got hit by that downgrade; the stock closed off $1.56 or 5.1%, to 28.90.

WELLS FARGO:

There was no joy at the Bureau of Labor Statistics, whose regional job report saw unemployment rising in 23 states last month. Layoffs have slowed, it's true, but companies remain touchy about hiring. Forty-three states reported job losses in September; seven reported gains.

The U.S. jobless rate rose to 9.8% in September — a 26-year high — from 9%. The Midwest, though, saw its unemployment rate drop for the second straight month, to 9.8% from 10% in August. It was the only region where the unemployment rate declined as Indiana and Ohio benefited from a rebound in the auto industry.

It's a very choppy recovery, evidently. The unemployment rate dropped in some Midwestern states as the manufacturing sector improved; but Florida and Nevada, two states hit hardest by the housing slump, reported record-high jobless rates. Complicating matters, people who are out of work but no longer looking for jobs aren't counted as officially unemployed. So some of the states that lost jobs still saw their unemployment rates improve because discouraged workers are giving up looking (not a good sign). That trend was evident nationwide in September, as nearly 600,000 people dropped out of the work force, as was reported earlier this month.

U.S. NONFARM EMPLOYMENT, 2007-2009:

A few weeks ago I ventured that we weren't going to see oil under $68 a barrel any time soon. The following week I was briefly wrong as oil fell under $67 for a couple of hours. Then crude took off and hasn't looked back. As witness Wednesday, when crude-oil futures rose to a one-year high on data from the Energy Information Administration showing a smaller-than-expected buildup in U.S. crude inventories last week, with imports falling to the lowest level in two months. Crude inventories rose 1.3 million barrels, less than the 2.2 million barrel gain expected by analysts. Imports fell to 8.7 million barrels a day, the lowest level in over two months. U.S. refiners lowered their output, with the utilization rate at 81%, near six month lows. Also in its inventories update, the EIA reported weekly declines of 2.3 million barrels for gasoline and 800,000 barrels for distillates, including heating oil and diesel.

On the New York Mercantile Exchange, crude for December delivery (the new front-month contract), rose $2.25 or 2.8% to settle at $81.37 a barrel, the highest settlement for a front-month contract since last October. On its way it hit an intraday high of $82.

NYMEX CRUDE FOR OCTOBER DELIVERY:

However, the EIA reported that petroleum demand remained weak, with gasoline use falling to the lowest level in more than five months. Gasoline supplied, an implied gauge of demand, fell to 8.95 million barrels a day, the lowest level since early May. Demand, shemand, as your mother-in-law might say. The main force lately behind the crude-oil run up is the continued weakness in the U.S. dollar against most major currencies, highlighting the appeal of dollar-denominated oil as a hedge against the weaker dollar. Such is almost always the way with commodities:

IPATH DOW JONES-AIG COMMODITY INDEX:

Oil has risen in nine of the 10 since Oct. 8 and gained 17%.

In the boost-earnings-by-cutting-costs department, we heard from Yahoo (YHOO), who did well largely by laying off employees. It also culled unpopular Internet services, not a bad move. Earnings for the third quarter more than tripled from the previous year, but revenue slipped for the third straight quarter. The Internet pioneer earned $186 million or 13 cents a share compared with $54 million or 4 cents a share last year, beating estimates by six cents. Revenue for the period fell 12% to $1.58 billion, not much better than the first-half's revenue drop of 13%, even with cash from the sale of a Chinese division. Yahoo makes most of its money in online billboards and other visual messages — campaigns that need long-term commitments, and those won't be made until advertisers are convinced the economy is strengthening. To make up slack, Yahoo is turning to Microsoft to power its search engine in the U.S. If regulators approve, Yahoo will transfer 400-odd workers to Microsoft and lay off some more.

Yahoo's stock price remains well below a $33-per-share takeover offer that Microsoft made in May 2008, only to withdraw the bid after Yang haughtily demanded more money, approximately five minutes before the market fell down the stairs. Perhaps you remember that episode with pain; I know I do, and the fact that Yang will languish forever in a dank corner of the CEO Hall of Shame is cold comfort. Investors now seem to think the company's current CEO Carol Bartz can turn things around; the stock soared at the open and although it fell after that, it still gained a few cents and closed near a 52-week high.

YAHOO:

Tomorrow the earnings torrent continues, including AT&T, McDonald's, Merck, 3M, Travelers, Amazon.com, American Express, Black & Decker, Raytheon, Schering-Plough, Bristol Myers-Squibb, Broadcom, Burlington Northern, Capital One, Celgene, Chubb, Goodrich Corp., Hershey's, Juniper Networks, Laboratory Corp. of America, Legg Mason, Philip Morris and Nucor. In economic reports, jobless claims and the EIA natural gas report should be market movers; leading indicators are also announced, and expect no fewer than six U.S. bill and note announcements.