US stocks booked heavy losses Monday with the Dow Jones Industrial Average losing more than 630 points, as Wall Street was rocked by Standard & Poor’s unprecedented downgrade of the nation’s debt late last week.
The Dow dropped 634.8 points, or 5.6 percent, to close at 10,809.9. It was the worst single-day point drop for Dow since 2008.
The Standard & Poor’s 500 Index dropped 79.9 points, or 6.7 percent, to 1,119.5. The technology-heavy Nasdaq Composite Index fell 174.7 points, or 6.9 percent, to 2,357.7.
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, which has about $650 billion in assets under management. Based on the surge in the VIX, he added, “We’re starting to move into panic mode.”
The steep declines continued even as President Barack Obama said Monday afternoon that the nation’s financial problems are “solvable,” blaming “a month of wrangling over the debt ceiling” for S&P’s downgrade.
“Investors wanted more specifics from Obama, but I don’t know if that’s reasonable right now,” Peron said. “When we see a credible policy response, that’s when we could see a bottom.”
The Dow Jones Industrial Average, also referred to as the Industrial Average, the Dow Jones, the Dow 30, or simply the Dow, is a stock market index, and one of several indices created by Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow.
It is now owned by the CME Group, which is the majority owner of Dow Jones Indexes. The average is named after Dow and one of his business associates, statistician Edward Jones.
It’s an index that shows how 30 large, publicly owned companies based in the U.S. have traded during a standard trading session in the stock market. It’s the second oldest U.S. market index after the Dow Jones Transportation Average, which was also created by Dow.
The anxiety about the U.S. 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 euro zone’s debt crisis.
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, which has over $340 billion in assets under management.
Volume was extremely heavy, with 17.5 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, sharply above last year’s daily average of 8.47 billion.
While all 10 S&P sectors lost more than 3.5 percent, the groups most sensitive to the economy, such as banking and commodities, were the hardest hit. The S&P financial index lost 10 percent while the S&P energy index lost 8.3 percent. U.S. crude oil futures slumped 7.3 percent.
Bank of America Corp plummeted 20.3 percent to $6.51. The Dow component was the most actively traded name on the New York Stock Exchange and the S&P 500’s biggest loser.
Monday’s global stock market sell-off wiped out more than $1.35 trillion in investor wealth worldwide, according to the 5.2 percent drop in the MSCI World Index . The index entered the week with a value of $26.42 trillion. The S&P 500 alone lost $729.3 billion in value with its drop for the day of 6.66 percent.
Late on Friday after the market’s close, S&P cut the United States’ perfect long-term credit rating of AAA by one notch to AA-plus on concerns about debt levels in the world’s largest economy. The downgrade could eventually raise borrowing costs for the U.S. government and companies, as well as for consumers.
Even the European Central Bank’s dramatic intervention in bond markets, which pushed down yields on Spanish and Italian bonds, was not enough to stem selling.
But some analysts noted the mass selling has made some stocks attractive at much lower prices. “Based on historical sell-offs, it wouldn’t be surprising to see a rebound in the more oversold areas, given how far down we’ve come and how fast,” said Brad Sorensen, director of market and sector analysis at Charles Schwab in Denver.
Barclays Capital, in a note to clients, wrote that the decline created a “time to buy,” and that the recent losses “left equity valuations at levels of cheapness not seen since the early 1980s.
“I’ve been in this business almost 30 years. When it gets to the point where you want to throw up, it’s probably time to buy, and we’re there,” said Angel Mata, managing director of listed equity trading at Stifel Nicolaus Capital Markets in Baltimore. [via Reuters]