August 8, 2011 7:07 PM EDT
US Markets
U.S. stocks tumbled deeper into correction territory in a Monday rout that sent the Dow Jones Industrial Average plunging to the biggest point drop since Dec. 1, 2008. The Dow Jones Industrial Average plunged 634.76 points, or 5.55%, to 10809.85, falling beneath 11000 for the first time since November and adding to last week's steep losses. The blue-chip measure ended exactly on session lows, in a harried trading day that was the stock market's first since Standard & Poor's downgraded the federal government's credit rating late Friday.
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Major stock indexes cascaded lower throughout much of the session, as S&P added downgrades of clearing bodies, entities such as Fannie Mae and Freddie Mac and lowered outlooks for companies including Warren Buffett's Berkshire Hathaway, following the Friday U.S. credit rating cut to double-A-plus from triple-A. The Standard & Poor's 500 stock index tumbled 79.92 points, or 6.66%, to 1119.46. Financial and energy stocks fell the hardest. Not a single S&P 500 component ended in positive territory. The Nasdaq Composite slumped 174.72 points, or 6.9%, to 2357.69.
The Russell 2000 index of small-capitalization stocks was hit hardest, falling 63.67 points, or 8.91%, to 650.96. Small caps tend to make more exaggerated moves and are generally viewed as riskier than the widely held shares of large companies.
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The fact that Monday's swoon came right on the heels of the Dow's biggest weekly point loss since the financial crisis in 2008 set up many market participants for forced sales and margin calls, traders said. That made some of the losses self perpetuating. It also raised the prospect of capitulation, the point when losses snowball and sentiment craters, helping markets find a bottom.
Bank of America plunged 20% to lead blue-chip decliners, stung by both a steep selloff in financial stocks and by word that American International Group Inc. is suing the company, along with a host of other prominent financial institutions, as it seeks to recover losses on mortgage-backed securities. AIG's stock fell 10%.
European Markets
European stock markets ended sharply lower Monday as the first-ever downgrade of the U.S. credit rating sapped confidence in most sectors and sent Germany's blue-chip index down 5%. The pan-European Stoxx 600 index dropped 4.1% to close at 228.98, bringing its monthly losses to nearly 14%, after Standard & Poor's late Friday cut its rating on the U.S. to AA-plus from AAA, and said the outlook was negative.
The German DAX 30 index, heavily weighted toward automotive and industrial stocks, performed the worst of the major indexes, tumbling 5% to close at 5,923.27. Car makers BMW AG and Daimler AG fell 8.8% and 7.1%, respectively. Steel maker ThyssenKrupp AG sank 9.6%.
Meanwhile, Russia's RTS stock index dropped 7.8% to 1,657.77, as falling oil prices hit the heavily represented energy sector. In Greece, the ASE Composite index tumbled 6% to 998.24, including a 5% drop for EFG Eurobank Ergasias SA. Monday's decline for the Stoxx 600 added to a 9.9% drop last week its worst since late November 2008.
The Stoxx 600 index had initially gained as much as 0.8% Monday morning as investors welcomed the European Central Bank's move to snap up sovereign bonds, which helped send yields on Spanish and Italian debt sharply lower. However, the gains for stocks were swiftly erased as worries over growth and the impact of the U.S. downgrade weighed heavily on cyclical stocks such as miners, technology firms and car makers.
In Europe, shares of PSA Peugeot Citroen slumped 9.1% in Paris after Morgan Stanley downgraded the stock two notches to underweight from overweight. Rival Renault SA fell 9.3%, helping pull the French CAC 40 index down 4.7% to close at 3,125.19. Spain's IBEX 35 index slipped 2.4% to 8,459.40, as shares of Banco Santander fell 1.2%.
Many banks, which had rallied sharply on the European Central Bank's buying swiftly lost ground, including ING Group, shares of which fell 8.3% in Amsterdam. In Italy, the FTSE MIB index dropped 2.4% to 15,639.75, with shares of Fiat Industrial SpA down 11%. In London, the FTSE 100 index fell 3.4% to settle at 5,068.95, including a 6.5% drop for mining giant Rio Tinto PLC.
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