US stocks plunged on yesterday, taking the S&P 500 down more than six per cent on growing fears of a recession, exacerbated by the loss of the country’s pristine triple-A credit rating.
Panicked selling on heavy volume resulted in the S&P 500’s worst day since December 2008, with every stock in the benchmark index ending in negative territory.
“We’re starting to see real disorderly selling, far more than what we’ve been seeing,” said Matthew Peron, head of active equities at the Chicago-based Northern Trust.
Perceptions that Washington is incapable of addressing the problems of rising debt and slowing growth have contributed to the selling. This was underlined by selling that picked up during a statement from President Barack Obama that offered few concrete ways to resolve the fiscal and economic problems.
The anxiety about the US economy was matched by rising worries about Europe’s debt problems, where the latest initiative to buy Italian and Spanish bonds is far from enough to solve the Eurozone’s debt crisis.
The CBOE Volatility Index (VIX), Wall Street's “fear gauge”, jumped 50 per cent to end at 48. This marked the first time the VIX has topped 40 since May 2010, when the “flash crash” occurred.
The S&P 500 is down 17.9 per cent from its 2011 closing high, reached on April 29 – putting it close to the 20 per cent decline from a recent peak that Wall Street defines as bear market territory.
Monday’s slide marked the first time since November that the Dow has fallen below 11,000.
“It is a panic, and almost by definition, it doesn’t have an issue. It wouldn’t matter what it was,” said James Paulsen, chief investment strategist at Wells Capital Management in Minneapolis.
The Dow Jones industrial average lost 634.76 points, or 5.55 per cent, to end at 10,809.85. The Standard & Poor’s 500 Index sank 79.92 points, or 6.66 per cent, at 1,119.46. The Nasdaq Composite Index plunged 174.72 points, or 6.90 per cent, to close at 2,357.69.
Volume was extremely heavy, with 17.5bn shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, sharply above last year’s daily average of 8.47bn.
While all 10 S&P sectors lost more than 3.5 per cent, the groups most sensitive to the economy, such as banking and commodities, were the hardest hit.