The U.S. stock market had a mini-meltdown on Thursday as fears about a second recession in the United States and Europe rattled investors.
Blue-chips, including Dow heavyweights like Bank of America, the country's largest lender, and JPMorgan Chase dragged the Industrials Index down nearly four percent.
The Dow Jones Industrial Average plunged 419.63 points, or 3.68 percent; the S&P 500 slumped 53.24 points, or 4.46 percent; while the tech-heavy Nasdaq tumbled 131.05 points, or 5.22 percent.
A gloomy report on the global economy from the U.S. bank Morgan Stanley prompted fears about a second recession in the United States and Europe.
The investment bank report warned that global growth was slowing and both America and Europe were dangerously close to recession”.
Recent policy errors, especially Europe's slow and insufficient response to the sovereign crisis and the drama around lifting the U.S. debt ceiling, have weighed down on financial markets and eroded business and consumer confidence, the bank said, Bloomberg reported.
Weaker-than-expected economic data also weighed on the sentiment.
Last week, 408,000 people applied for unemployment benefits, the highest such level in a month, and up from the 399,000 recorded in the prior week.
Generally speaking, when the claims figure exceeds 400,000, it means that the economy isn’t creating jobs fast enough to meet demand. The data suggests that labor markets remain tough and that any economic expansion has slowed to a crawl. In July, the economy added only 117,000 jobs, placing the national unemployment rate at a stubbornly high rate above nine percent.
Consumer price inflation rose in the U.S. by 0.5 percent in July, the biggest monthly gain since March, exceeding consensus estimates for a 0.4 percent gain.
Sentiment among participants soured drastically with the release of the August Philadelphia Fed Survey, which dropped to -30.7. It had been expected to trend down to only 1.0 from 3.2 in the prior month.
The National Association of Realtors reported that existing home sales dropped by 3.5 percent to 4.67 million in July, versus expectations for a modest gain.