Panic Grips Wall Street, Dow Plunges 500 Points

Fears about the global economy led to the biggest panic in financial markets since the 2008 financial crisis. The Dow plunged nearly 513 points Thursday, its biggest point decline since Oct. 22, 2008. Only three of the 500 stocks in the Standard & Poor's 500 index had gains. Oil fell by 6 percent. The yield on the two-year Treasury note hit a record low as investors sought out relatively stable investments.

All three major stock indexes are down 10 percent or more from their previous highs, a drop-off that is considered to be a market correction. A drop of 20 percent or more signifies the start of a bear market, an extended period of stock declines.

Were you active in the stock market Thursday?
Yes, I bought stocks1 (25.0%)
Yes, I sold stocks1 (25.0%)
I held my position(s)1 (25.0%)
I don't own any stocks1 (25.0%)
Investors are increasingly concerned about the possibility of another recession in the U.S. and a debt crisis in Europe.

"We are continuing to be bombarded by worries about the global economy," said Bill Stone, chief investment strategist at PNC Financial.

The Vix, a measure of investor fear, shot up 36 percent. It is up 92.6 percent for the quarter, which began July 1.

The Dow Jones industrial average was down 512.61 points, or 4.3 percent, to 11,11,383.61. Thursday's losses turned the blue-chip stock index negative for the year.

Related: Check Your Portfolio

The S&P 500 - the benchmark for most mutual funds - lost 60.20, or 4.8 percent, to 1,200.14. It is now down 12 percent from its recent high of 1,363 reached on April 29. The Nasdaq composite shed 136.68, or 5.1 percent, to 2,556.39.

Oil dipped to $87 a barrel on worries demand will fall because of the slowing economy. It had traded over $100 as recently as June 9.

Nearly 20 stocks fell for every one that rose on the New York Stock Exchange.

European stocks also fell broadly because of concerns that Italy or Spain may need help from the European Union. The benchmark stock indexes in Italy, Germany and England each fell 3 percent.

Stock trading has been volatile this week because of concerns that the U.S. economy is weakening. Manufacturing, consumer spending and hiring by private companies are below levels that are consistent with a healthy economy. Those reports have called into question estimates from economists, including Federal Reserve Chairman Ben Bernanke, that the economy will grow more quickly in the second half of the year.

Money poured into investments that are seen as relatively safe when markets are turbulent. The yield on the 10-year Treasury note fell to 2.42 percent, its lowest level of the year. The yield on the 2-year Treasury note hit a record low of 0.26 percent. Bond yields fall when demand for them increases.

Mark Luschini, chief investment strategist for Janney Montgomery Scott, an investment firm in Philadelphia, said some clients are moving to cash "as a parking lot to sort things out."

How concerned are you about the possibility of another recession?
Very1 (25.0%)
Somewhat1 (25.0%)
Just a bit1 (25.0%)
Not at all concerned1 (25.0%)
"With the scars of 2008 still fresh, some clients don't want to miss the chance to pre-empt further damage should it come," Luschini said.

Large investors have moved so much money into cash accounts at Bank of New York that on Thursday the bank said it would begin charging some clients a 0.13 percent fee to hold their cash.

"In the past month, we have seen a growing level of deposits on our balance sheet from clients seeking a safe-haven in light of the global interest rate and credit environment," the bank said in a statement to The Associated Press. Bank of New York clients include pension funds and large investment houses.

"Investors are deciding that now is the time to take risk off the table," said Brian Gendreau, market strategist for Cetera Financial Group. Gendreau said that some investors are now wondering whether stocks will have a prolonged slump similar to the aftermath of the Great Depression.

Technical trading, a term used to signify buying or selling based on the S&P 500's prior highs and lows, also helped push stocks downward. The S&P 500 fell below 1,222, a so-called support level, early in the day. That signified to some traders that the stock market would continue to slide.

"Traders are respecting the technical levels even if they're not technicians," said Quincy Krosby, market strategist at Prudential Financial. "Even if you're what we call a conviction buyer, you have to respect those levels."

Companies that outperform when the global economy expands fell the most. Alcoa fell the most, with a 9 percent drop. Bank of America and Caterpillar were down 7 percent. Boeing ended down 6 percent.

Some traders are selling ahead of Friday's employment report, which is expected to show that unemployment remained at 9.2 percent last month. A rise in the unemployment number would likely push stocks lower again.

The U.S. government said before the market opened that the number of people who applied for unemployment benefits for the first time was only slightly lower last week to 400,000. That's still above the 375,000 level that economist say indicates a healthy job market. It was the latest indication of weakness in the U.S. economy.

All 10 industry groups in the S&P index fell. Energy, materials and industrial companies each lost 5 percent or more.

The sell-off comes at a time when corporate profits are growing. The forward price to earnings ratio of the S&P 500 has fallen to about 12, well below its long-term average of 16. That means that investors who buy now are paying less for each dollar in profits.

Based on what an investor now pays for corporate profits, stocks are now trading at their lowest levels in 20 years, said Tim Courtney, chief investment officer of Burns Advisory Group in Oklahoma City.

Few companies were spared in the sell-off. Just 3 of the 500 stocks in the S&P 500 moved higher. General Motors Co. fell 4 percent despite beating analyst's earnings estimates.

The stock market as a whole had its biggest fall since the start of the current bull market in March 2009. The drop in the S&P was the largest since a 45-point decline on January 20, 2009. The Dow is down 1.7 percent for the year. The S&P 500 is down 4.6 percent. And the Nasdaq is down 3.6 percent. The Russell 2000, an index made up of small companies, has fared the worst. It was down 5.6 percent Thursday and is down 7.3 percent for the year.

World Stock Markets Plunging Again

Increase your money and finance knowledge from home

Introduction to Value Investing

Are you the next Warren Buffett?

View Course »

Small Cap Investing

Learn now to invest in small companies the right way.

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:

Obama must be partying big time with this news.

August 05 2011 at 9:53 PM Report abuse rate up rate down Reply

Money + Emotion= TROUBLE. First of all, if you have money in the market, DON'T check it everyday. You are NOT going to make money overnight, nor will you lose it overnight. Our brains are designed to perceive trends even where they might not exist. If an event occurs 2 or 3 times in a row, our brains tell us that it will happen again. So, if stock goes up a few times in a row, you automatically expect it to keep going. When stocks drop, the loss fires up your amygdala-or the part of the brain that processes fear and the "fight or flight" response. You cannot help but be fearful when the market declines.
Think about it..the market dropped 4.3%. Now, imagine the temperature outside is 85 degrees. How rediculous would it sound if the weatherman came on T.V. screaming that the temp dropped to 81 degrees (or ROUGHLY a 4.3% drop). You would say..."SO WHAT?" Do you check the market price of your home every day?? If you did, would it prevent it from rising or falling? Over a 10, 20 or 30 year investment horizon, a 4.3% drop isn't going to amount to crap. In fact, you should be happy, because it allows you to buy more quality stocks at a lower price. Don't buy into the fear the media is selling. Check the history of the market. All it does..OVER go up. Buy stocks in companies you have REASEARCHED extensively. ALWAYS read the financial statements in the annual reports. Read them from back to front. Anything the company does not want you to know is hidden in the back. Thoroughly analyze a company, and the soundness of it's underlying business BEFORE buying its stock. Aspire to adequate, not extraordinary, performance. Find stocks with current assets at least twice their current liabilities, uninterrupted dividend payments for at least the last 20 years, earnings for the stock in each of the past ten years, and the current price should not be more than 15 times average earnings over the last three years. DON'T let fear be your guide!!!

August 05 2011 at 7:12 PM Report abuse +1 rate up rate down Reply

Keep gas prices skyrocketing genuises wall street is gonna wish speculation was illegal on petro. By the time they figure out the real problem it will be to late again. Mortgages crashed because people had to pay the pump instead of paying the mortgage notes. Guess whats happening now that gas is $3.75 were in trouble again.

August 05 2011 at 3:29 PM Report abuse rate up rate down Reply

I work in customer service for a company that offered variable annuities, and I take trades. The feeling yesterday was about 50/50...some people got scared and sold, some people saw it as Wall's version of the KMart Blue Light Special & went crazy aggresive. And in the background, you could clearly hear the TVs tuned in to CNN, or MSNBC, or one of those. So many people get their investment advice now from TV, yet the advice givers have never MET the investors to see what their needs are, their risk tolerance is, their overall assets, etc. It's the blind leading the naked.

August 05 2011 at 3:27 PM Report abuse rate up rate down Reply

This couldn't have anything to do with the wars in Afghanistan and Iraq that we can't pay for, could it? We are drumming up some new business in Libya by having NATO bomb anything that moves and killing a lot of people, that should help. Yep, killed another of Gadhafi's kids today, isn't that great news for the stock market. Just think of all the money we can make on the half million foreigners who are trying to get out before NATO gets them. Their has got be be a lot of money in that. Big tip. Put your money in war materials stocks. That is about all we can depend on, more wars.

August 05 2011 at 3:10 PM Report abuse rate up rate down Reply

hate to teel you this but it was clinton who transfered 500 billion from the social security fund of 885 billion to the general revenue fund therefore balancing the budget cute trick but he did it with no legislation in place to replace the money he stole from the american public's retirement system thats why social security now has only 385 billion in the trust fund. now if they would raise the social security taxes and restore this fund as clinton should have done to stop future presidents who callously increase the deficit like bush who in 8 years and 2 wars increased by 4.3 trillion the deficit then as a parting gift to his fellow billionares created the stock market bail out to the tune of 8.7 trillion (which I might add hasn't been repaid) that makes 12 trillion and add obamas 2.3 trillion deficit by trying to spend our way out of this fiasco and voila 14.3 trillion in debt the tarp funds were just a drop in the bucket all that was used for was for banks to invest it in government bonds and make a windfall profit on intrest which was pocketed and doled out as more bonuses for the banks all the toxic mortages were insured by AIG whom we bailed out this was insurance fraud also these same companys were betting on these toxic mortages to fail and therefore made a bundle off this as they did and freddie mac and fanny mae several trillion in losses and we took it over but the upswing to that is America is now the landlord owning all this property my question is when is the govt going to start selling all this property and when do we start getting repaid all these trillions and when is congress going to go after this massive swindle thats been pulled on the american public ha ha not until we elect a complete new congress free of democrats and republicans and not replaced by the zealots like the tea party what the new party should be called is the common sense party one who when elected will go after this massive corporate theft no we can't recover bushes 4.3 trillion boondoggle or obamas 2.3 trillion buy your way out of debt boondoggle but we can recover all the 8.7 trillion that was swindled from the american public there is no statue of limitations on insurance fraud and the billions that were made as a by product of this insurance fraud but not until the entire congress is voted out and a new party of common sense is elected and then we can see america investing in america and and end of the career polititions replaced and regulation on futures betting in wall street and a end of the day traders by putting a 25 cent per share tax on each stock sold in day trading and regulate the massive bonuses paid to wall street executives and stiff penalities on fraud and stock manipulation mandatory 30 years no parole all wealth confiscated from those convicted and those helping them hide these funds but until america quits belly aching about all of this garbage and stands up and votes these few hundred career people out of congress it wont change

August 05 2011 at 2:43 PM Report abuse rate up rate down Reply
1 reply to kyatahey's comment

Kenneth- I really want to read what you have to say, but I don't even know where to take a breath let alone end a sentence. Your thought processes appear to be well stated and your spelling accurate, so you seem to be literate enough. Why then, for the love of God, can't you punctuate and capitalize-you know, make sentences?!

August 05 2011 at 3:34 PM Report abuse rate up rate down Reply
1 reply to Pattie's comment

Amen, Pattie. I'd like to read his entire comment but people that can't take the time to construct a readable sentence get passed over by most of us.

August 05 2011 at 4:18 PM Report abuse rate up rate down

America will NEVER recover until we have Leadership who understands the danger of continued massive over spending and seriously takes steps to reduce America's deficit.

August 05 2011 at 2:37 PM Report abuse +1 rate up rate down Reply

Market down 41/2 %, unemployment near 10 %, National Debt $4.8 Trillion higher, and climbing at a rate of $4.1 Billion dollars a day. The dollar lower, the trade deficit higher, and the Misery Index way above that of Jimmy Carter.
Oh, and for you Code Pinko's, wer'e still in Iraq, Afganistan, and club Gitmo is still in full swing.

Hey, How's that hopey change doing for you NOW. Obama now says- "hey, I didn't mean in just one month, or even 2 years" (He even tried to blame his ills on the Earthquake in Japan) . So how long there O great one? I thought he could make the seas retract, walk on water if he had to.
give him credit for how to wreck a country.

August 05 2011 at 2:22 PM Report abuse rate up rate down Reply

This President is bent on taking this country down economically. Look at our oil crisis in this country. We have the resources ... and the opportunity.. to put people to work , BUT this president agreed to help Brazil expand offshore drilling while U.S. production struggles to get back on its feet in the shadow of the BP spill.

His administration wants to assist the Brazilian government "with technology and support" in developing its oil reserves -- a black gold mine he said could hold twice as much oil as U.S. deposits. His comment..?? Ready for this: ""And when you're ready to start selling, we want to be one of your best customers,"

His comments are not only bizarre and misguided, considering the administration has stressed the need to wean the United States off foreign oil and move toward alternative fuels.

Hey, charity begins at home.

August 05 2011 at 2:22 PM Report abuse rate up rate down Reply

Q: What is the common thread among the failing counties around the world?
A: Debt due to unchecked spending
Q: Anyone listening?

August 05 2011 at 2:21 PM Report abuse +4 rate up rate down Reply