Wall Street has dizzying day over global economic worries

Associated Press

NEW YORK

Fear drove Wall Street to one of its most dramatic, dizzying days in years Wednesday.

Investors fled stocks and poured into bonds as worries about a global economic slowdown intensified. The Dow Jones industrial average dropped 460 points in afternoon trading, all three U.S. stock indexes were in negative territory for the year, and the so-called fear index spiked.

A late recovery limited the damage and left stocks mostly lower. But investors were shaken after the heaviest day of trading in more than three years.

“I think it’s fair to call it a global-growth scare right now,” said Bill Stone, chief investment strategist at PNC Asset Management.

Investor concerns of a worldwide economic slowdown turned into outright fear after weeks of turbulence. Germany, Europe’s biggest economy, is struggling. China’s economy appears to be slowing. A batch of worrisome economic news in the U.S. also fueled the selling.

Traders sold riskier investments and moved money into U.S. government bonds, gold and cash.

By the end of the day, the Dow Jones industrial average lost 173.45 points, or 1 percent, to 16,141.74. The Standard & Poor’s 500 index fell 15.21 points, or 0.8 percent, to 1,862.49 and the Nasdaq composite dropped 11.85 points, or 0.3 percent, to 4,215.32.

The relatively modest declines, however, masked what was a frightening ride for investors. At one point, the Nasdaq flirted with a correction, which happens when a benchmark index closes 10 percent or more below a recent peak.

Wall Street’s so-called “fear index” also kept rising. The Chicago Board Options Exchange’s volatility index, known as the VIX, has more than doubled over the past month: from 12 in September to 26 on Wednesday.

Government bonds also reflected deep anxiety among investors. The yield on the benchmark U.S. 10-year note slumped from 2.20 percent to below 1.91 percent in early trading Wednesday, a move of 29 basis points. As bond prices rise, yields drop.

“It typically takes weeks for 10-year Treasurys to move 29 basis points,” or 0.29 percentage points, noted Tom di Galoma, head of fixed income rates in New York at ED&F Man Capital. “Today it moved 29 basis points in five minutes.”

By the end of the day, the 10-year pulled back to a yield of 2.14 percent.

Stone said he thought the plunge in bond yields likely played a role in the stock market’s steep drop in early trading.

“I don’t care who you are: To see the 10-year near 2 percent is shocking,” he said.

Investors have grown nervous of a stock market that had pushed ever higher, even in the face of a weakening global economy. The U.S. market also has not had a correction in more than three years. Historically, a correction happens every 18 months.

The S&P 500 index is now 7.4 percent below the peak of 2,011.36 it reached Sept. 18. It would have to close at 1,810.22 or lower to mark a correction.

Wednesday’s slide brings the market closer to that long-predicted but elusive point.

Michael Binger, senior portfolio manager at Gradient Investments, said that investors may have started to step back into the market in the last hour of trading as the S&P 500 approached a drop of close to 10 percent from its record close of Sept. 18.

“The market has been waiting for this 5 to 10 percent correction for quite some time, and we got it,” he said.