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On Wall Street, fear takes over
ASSOCIATED PRESS
Photo
Trader Patrick Garveyreacts after the close of trading in the S&P 500 Futures pit, on the floor of The CME Group Monday, Aug. 8, 2011, in Chicago. Stocks plummeted at the close after anxiety overtook investors on the first trading day since Standard & Poor's downgraded American debt. (AP Photo/M. Spencer Green)
- Dow Drops:
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- 8/9: Local stocks see losses
- 8/9: A worldwide plunge: Experts predict 1 in 3 chance of another recession
- 8/9: As markets buckle, some investors look to buy
- 8/9: Questioning S&P’s political judgment
- 8/9: On Wall Street, fear takes over
Associated Press
NEW YORK
Fear has taken over on Wall Street.
The Dow Jones industrial average fell 634.76 points Monday, the first trading day since Standard & Poor’s downgraded American debt. It was the sixth-worst point decline for the Dow in the last 112 years and the worst drop since December 2008. Every stock in the S&P 500 index declined.
But the S&P downgrade wasn’t the only catalyst Monday. Investors worried about the slowing U.S. economy, escalating debt problems threatening Europe and the prospect that fear in the markets would reinforce itself, as it did during the financial crisis in the fall of 2008.
“‘What’s rocking the market is a growth scare,” said Kathleen Gaffney, co-manager of the $20 billion Loomis Sayles bond fund. “The market is under a lot of stress that really has little to do with the downgrade.” Instead, Gaffney said, investors are focused on worries about another recession and “how Europe and the U.S. are going to work their way out of a high debt burden” if economic growth remains slow.
The Vix, a measure of market volatility and fear among investors, shot up 50 percent. That was its steepest rise since February 2007.
Investors desperately looked for safe places to put their money and settled on U.S. government debt — even though it was the target of the downgrade Friday, when S&P removed the United States from its list of the lowest-risk countries.
The price of Treasurys rose sharply, and yields, which move in the opposite direction from price, plunged. The yield on the 10-year Treasury note fell to 2.34 percent from 2.57 percent Friday. That matches its low for the year, reached last week. Before last Friday, there was widespread concern that a downgrade would push yields up and increase borrowing costs for the government, businesses and consumers.
“This is largely a flight to safety,” said Thomas Simons, money market economist with Jefferies & Co. “The bond market is really trading off of what’s going on in the stock market.” Money flowed out of stocks and into Treasurys.
Crude oil, natural gas and other commodities fell sharply on worries that a weaker global economy will mean less demand. Oil fell 6.4 percent to $81.31 per barrel, its lowest price of the year.
Fear is spreading quickly through the market, said Dimitre Genov, senior portfolio manager with Artio Global Investors. “It’s becoming a vicious cycle and could feed into consumers reducing their demand as well.”