Dow falls 635 points in 6th-worst loss

Futures trading suggests stocks will open sharply higher after Monday's big sell-off prompted by S&P's downgrade of US debt and worries about Europe's financial system. Gold finishes above $1,700; oil drops below $84. Bank of America falls 20%.

By Charley Blaine Aug 8, 2011 12:28PM
Charley BlaineUpdated: 3:35 a.m. ET

The Great Sell-Off of 2011 became the Great Rout of 2011 on Monday as worries about European debt problems and the impact of Standard & Poor's downgrade of U.S. debt on domestic and global growth combined to  push stocks to their biggest one-day losses since December 2008.

The Dow Jones Industrial Average ($INDU) suffered a loss of 635 points, or 5.5%, to 10,810, its sixth-worst point loss ever. And that was actually a decent performance, relatively speaking.

The Standard & Poor's 500 Index ($INX) was off 6.7%, and the Nasdaq Composite Index ($COMPX) fell nearly 7%. Stocks in Asian and Europe also slumped.

But stocks look to open higher on Tuesday after stocks in Asia bounced rebounded from sharp low. European stock markets opened higher. Tom McClellan of the McClellan Market Report sees a short, intense rebound -- and then more selling into an October bottom.

Article continues below.
Futures trading suggests the Dow will open 100 points or more higher, with the S&P 500 up at least 1.5% higher and the Nasdaq-100 Index ($NDX.X) up 1.4%. The Nasdaq-100 tracks the largest Nasdaq stocks.

The rebound was quite pronounced in Japan. The Nikkei 225 Index ($JP:N225) was down as many as 441 points in the mid-morning on Tuesday. Then, a pronounced rally in the afternoon trimmed the decline to just 153 points, or 1.7%. Hong Kong's Hang Seng Index was off as much as 7.9%, but the loss was cut to 2.2% just before the close.

Gold (-GC) for December delivery jumped to as high as $1,771.73 an ounce but fell back to $1,741.80, up $28.60. After falling to as low as $75.71, crude oil (-CL) was down just 84 cents to $80.47 in electronic trading.

Downgrade and Europe batter stocks on Monday
Monday's sell-off was prompted by S&P's downgrade late Friday and continued worries that Europe's debt crisis was spinning out of control. The loss was very broad, with very few stocks showing gains.

More than 900 stocks, in fact, hit 52-week lows today, according to data from Barchart.com. They include JPMorgan Chase (JPM), Lowe's (LOW), Merck (MRK), Transocean (RIG) and teen retailer Urban Outfitters (URBN)

Tuesday will be dominated by market reaction to the Federal Reserve policy statement, due at 2:15 p.m. ET, as well as the hangover from the horrible selloffs of today and Thursday.

The big earnings report will come after the close from Walt Disney (DIS). Disney shares were off 6.1% to $33.03 today. The company is expected to report earnings of 73 cents a share for its fiscal-third quarter, up from 67 cents a year ago. Revenue is estimated at $10.45 billion, up from $10 billion a year ago.

China will be reporting on its consumer price index, industrial production and retail sales.

The Dow falls below 11,000
Since safety was the only game around on Monday, the Dow was pummeled repeatedly into that 635-point loss, its first close below 11,000 since Oct. 8, 2010. The index has fallen 1,915 points since July 22. The 5.6% percentage decline was the 48th-worst for the index ever and largest since Dec. 1, 2008.

The S&P 500 was off 80 points to 1,119. The Nasdaq was off 175 points to 2,358.

Volume was more than 2 billion shares on Nasdaq and 1.3 billion shares on the New York Stock Exchange. Decliners were ahead of gainers 50-to-1 on the NYSE and 12.5-to-1 on Nasdaq.

The situation was serious enough that many investors were buying insurance against further drops. The CBOE Volatility Index ($VIX) was up 50% to 48, its highest level since April 2009.

"Not only is the economy not growing as most would like, but there is a concern that fiscal and monetary authorities are powerless to do more for the economy," said Michael Pond, co-head of interest-rate strategy for British bank Barclays (BCS).
 
Meanwhile, S&P said it was downgrading the debt of Fannie Mae (FNMA) and Freddie Mac (FMCC), the big providers of mortgage capital, and other U.S. agencies.

Energy prices -- New York close



Mon.

Fri.

Month chg.

YTD chg.
Crude oil (-CL)

$81.51

$86.88

-14.83%

-10.80%
(per barrel)











Heating oil (-HO)

$2.8657

$2.9417

-7.44%

12.66%
(per gallon)











Natural gas (-NG)

$3.9040

$3.9410

-5.81%

-11.37%
(per mil. BTU)











Unleaded gasoline (-RB)

$2.7472

$2.8052

-10.16%

11.98%
(per gallon)











Brent crude 

$103.74

$109.37

-11.14%

9.49%
(per barrel)











Retail gasoline

$3.6630

$3.6730

-1.27%

19.24%
(per gallon; AAA)












Gold soars; Treasury yields drop
What investors really, really wanted today was safety, especially in light of increasing evidence that the U.S. and global economies are slowing. 

So, they bought Treasury securities, the very obligations that S&P downgraded from AAA to AA+. The 10-year Treasury yield fell to to 2.339% from Friday's 2.558%.

And, of course, they wanted gold. Gold topped $1,700 for the first time, hitting as high as $1,723.40 an ounce. It settled at $1,713.20 in New York this afternoon but popped right back up to $1,719.60.

Silver (-SI) settled up $1.17 an ounce to $39.38 an ounce and fell back to $39.045 in electronic trading. Copper (-HG) was off 15.6 cents to $3.9615 a pound.

Crude oil settled down $5.37, or 6.2%, to $81.31 a barrel, its lowest level since November. It was at $81.08 after hours. Brent crude was off $3.43, or 3.1%, to $103.78.  Energy shares slumped. The Energy Select Sector SPDR (XLE) exchange-traded fund was down 6.7% to $63.49. The ETF tracks the energy sector of the S&P 500.

Europe's problems may be more serious
While Americans can be excused for thinking the S&P downgrade was the big event, the European debt crisis was more dangerous.

That's because the European Central Bank has been forced for the first time to prop up the debt of Italy and Spain, two of its biggest member nations. Italy's and Spain's bonds have been under attack from speculators who aren't convinced either nation can keep current on their debts.

As a result, Germany's Dax Index ($DE:DAX) was off 5% to 5,923 on Monday. Britain's FTSE-100 Index ($GB:UKX) was off 3.4% to 5,069.

All 30 Dow stocks are lower
For much of Monday, Procter & Gamble (PG), the classic consumer-staples stock, was alone among the 30 Dow  stocks to show a gain. But shares were off 2.2% to $59.29. 

The company, which beat Street estimates for fiscal-fourth-quarter results on Friday, sells products that people buy regardless of the state of the economy -- soap, detergents, cleaning supplies and the like. 

Not even gold stocks were spared. Newmont Mining (NEM), one of the largest producers of gold, was higher for most of the day but closed down 0.5% to $54.13. It was third-best among S&P 500 stocks.

O'Reilly Automotive (ORLY) was the best Nasdaq-100 performer, but it was down 1.4% to $57.51. The index was off 134 points, or 3.6% to 2,116.

Apple (AAPL), down 5.5% to $353.21, contributed 17 points to the Nasdaq-100's decline.  Apple and six other stocks -- Oracle (ORCL), Microsoft (MSFT), Google (GOOG), Qualcomm (QCOM), Cisco Systems (CSCO) and Amazon.com (AMZN) -- combined to subtract 59 points from the index. (Microsoft publishes MSN Money.)

Why Bank of America tanked
Bank of America was the biggest loser among Dow and S&P 500 stocks, down 20.3% to $6.51. Investors worried the banking giant won't be able to handle all the problems created by its mortgage business. The selling accelerated after a big hedge-fund manager sold out his stake.

It's not clear if the collapse today of Bank of America's stock price means the government may be forced to extend assistance again. Most of its problems are mortgage-related and directly the result of its disastrous 2008 acquisition of Countrywide Financial.

It was hit with two bits of bad news today: American International Group (AIG) sued the company for more than $10 billion over what it called a "massive fraud" on mortgage debt, deepening the litigation morass facing the largest U.S. bank.

AIG said it expects to pursue other litigation to recover losses from counterparties that "sought to profit at our expense." Taxpayers still own 77% of AIG, which received $182.3 billion of government bailouts.

The other was that hedge-fund manager David Tepper, who won big in 2009 betting on battered bank shares, now is bailing out on some battered bank shares.

CNBC said Tepper’s Appaloosa Management sold its position in the banking company.


Short hits from the markets -- New York close



Mon.

Fri.

Month chg.

YTD chg.
Treasury yields











13-week Treasury bill

0.020%

0.010%

-77.78%

-83.33%
5-year Treasury note 

1.092%

1.253%

-20.47%

-45.83%
10-year Treasury note

2.339%

2.558%

-16.61%

-29.23%
30-year Treasury bond

3.663%

3.823%

-11.35%

-16.02%
Currencies











U.S. Dollar Index

74.938

74.802

1.22%

-5.49%
British pound

1.6324

1.6466

-0.67%

4.60%
(in U.S. $)











U.S. $ in pounds

£0.613

£0.607

0.67%

-4.40%
Euro in dollars

$1.42

$1.44

-1.60%

5.94%
(in U.S. $)











U.S. $ in euros

€ 0.705

€ 0.696

1.63%

-5.61%
U.S. $ in yen 

77.81

78.15

1.00%

-4.37%
U.S. $ in Chinese

6.43

6.44

-0.43%

-2.78%
yuan











Canada dollar

$1.007

$1.019

-3.80%

0.40%
(in U.S. $)











U.S. dollar 

$0.993

$0.982

3.87%

-0.47%
(in Canadian $)











Commodities

 

 

 

 
Gold (-GC)

$1,713.20

$1,651.80

5.21%

20.53%
(per troy ounce)











Copper (-HG)

$3.962

$4.117

-11.56%

-10.92%
(per pound)











Silver (-SI)

$39.3800

$38.2110

-1.81%

27.29%
(per troy ounce)











Wheat (-ZW)

$6.5650

$6.7900

-2.38%

-17.34%
(per bushel)











Corn (-ZC)

$6.7525

6.93

1.47%

8.47%
(per bushel)











Cotton 

$0.9901

1.0148

-3.01%

-31.63%
(per pound)











Coffee

$2.3420

2.38

-2.23%

-2.62%
(per pound)











Crude oil (-CL)

$81.31

$86.88

-15.04%

-11.02%
(per barrel)










 
1478Comments
Aug 8, 2011 1:03PM
avatar

This could have ALL been avoided if we had "real" leaders here in America, who were competent, and actually had our Nations best interests, NOT their own, in mind and at heart.!!!

Aug 8, 2011 1:24PM
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Here is another thought.  Why doesn't President Obama; ask Timothy Geitner to go back to Turbo  Tax; and see what they tell him to do this time around.  Or better yet; why doesn't the whole lot of them resign; and watch this country's economy soar; and our credit rating would be upgraded back to AAA where it belongs.  Close our borders to Trade and to illegals; and then bring our troops home and go through out our own country and round up the 24 million plus illegals here draining our treasury; and send them back where they belong.  Fix America First should be the slogan of our Next President.
Aug 8, 2011 1:03PM
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The sooner it collapses, the sooner we can get rid of the corruption, the treason, the federal reserve thiefs, Happy days will be here again.
Aug 8, 2011 4:32PM
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So here's the plan...

 

Since congress is on vacation, lets pack up their offices and put the boxes on the steps of the Capitol.  Let's fire them all.

 

We also need to change the locks in the Capitol.  Also take away their pension and 401K like the rest of us and see if they can live on $284.00 a week unemployment insurance.  It can't be done.

 

What's good for the goose....

Aug 8, 2011 2:24PM
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The corruption in this Country is staggering, from the politicians to the fat cats on wall street who play with speculation, crunching numbers unfounded rumors to drive the market  how they see fit, meanwhile the Blue Collar workers take it in the shorts.

 

To point fingers and blame one party is just ludicrous, they are both at fault and far more dysfunctional than the cast of Jersey Shore. Until Americans of BOTH Parties take off the diehard loyal party rose colored glasses, this Country will continue down its current path to two classes, the ultra rich and the paycheck to paycheck class, is this what we really want?

Aug 8, 2011 12:59PM
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Today, the father of a member of Seal Team 6 was being interviewed.  He said, quoting his son, that there are 3 type of people in the world.  Sheep Dogs, Sheep and Wolves.

 

To borrow from that, the sheep we have elected to high public offices are being led by wolves.  Isn't it time for the rest of We The Sheep to make a change.  It reallly isn't about politics, it is about the moral values of the sheep we elect.

Aug 8, 2011 1:46PM
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The country has been going downhill for many years and when it finally takes a dump you blame the last man in charge, how sad.  I will say that the President has to take some blame because he has refused to stand up to the crooks that tanked not only America but a most of the free world.

 

I would like to know why the “To Big To Fail” companies are still allowed to even exist.  Put the Glass Steagal act back into place and enforce it. Start the trials and put the people (crooks) away that caused the melt down. There should be a prison somewhere FULL of Bankers, Investors and CEOS. Once again the Middle Class and the poor will take a hit and the A-HOLES that did the damage will walk away free and clear.

Aug 8, 2011 3:16PM
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Come next election we need to vote for moderate Republicans and Democrats, need to get rid of the extreme left and extreme right, we need more people who lean towards the middle willing to do what is needed to fix our country and not force their personal ideology on everyone at the cost of our country.  I was listening to this commentary about how over 50% of all politicians are lawyers, where are the politicians who were Doctors, Engineers, Economists, Teachers, Businessmen,  etc....  How did we let the Lawyers take over Washington?  We need to stop voting in Lawyers into Washington...
Aug 8, 2011 12:57PM
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This is just what happens when you give bail outs to rich people and forget about main street and the job's needed to keep things rolling . Great work there Wall street Maybe next time you will think about the workers and how to create job's not take them away ?
Aug 8, 2011 1:04PM
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I was told once when things were getting rough "Whatever you do, don't panic." I have no intention of panicing. Look at it this way, prices are down, time to buy!

Aug 8, 2011 1:11PM
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S&P What a joke.  These are the same people that rated those Mortgage back Securities AAA not so long ago in 2008 before the bust. HMMM I would not be surprised if S&P is trying to get back
at Obama for trying to regulate the Securities Industry, let's face it, every time there has been deregulation, it's  been followed by Bubble then Burst. Hmmm let me see, Junk bonds; you remember those, Dot Com Bust, ohh and the now infamous Mortgage backed securities based on derivative trading.  I say we regulate the securities Industry and bring back the Glass Seagal Act. are we afraid of these people or what?

Aug 8, 2011 1:10PM
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Heads up Washington - I blame the Incumbents.  We'll talk Tuesday November 6, 2012.

Everything around the handling of the debt ceiling tells me the leadership we have in all three branches of government is NOT adequate to task.
Aug 8, 2011 7:39PM
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Based on my perspective I've seen it like this: Around 2008 I wondered how all these people could afford these enormous homes. Turns out they couldn't and lenders were giving them loans they knew they couldn't pay then selling their mortgages to other entities to get their money out of it. To counter the housing bubble bursting our govt decided a cash infusion into our economy was the answer along with bailing out the unethical lenders (banks) they deemed too big to fail. So in essence here we are, no assets, in debt, and beholding to China who now own most of our US bonds. Basically we're f&^%$# for the remainder because we didn't let the corrupt fail and the honest rebuild the broken.  
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Looks like Obama failed to stimulate the economy with BAIL OUTS to Wall Street . Maybe he should have given the bail outs to the American PEOPLE after all it is and was our money . Oh well now you see the error in bailing out rich people and forgetting the workers of the country ! Great job Obama really why not just hand them over more cash to feed there greed ?
Aug 8, 2011 2:11PM
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Maybe this will slow the greedy a bit. Drop gas prices. DO NOT BAIL OUT ANY MORE BANKS. let them fall on their butts.
Aug 9, 2011 12:06AM
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NOW HERE'S AN IDEA !!!!!!!!

Warren Buffett, in a recent interview with CNBC, offers one of the best quotes I've heard in all this drama about the debt ceiling:

"I could end the deficit in 5 minutes," he told CNBC. "You just pass a law that says that anytime there is a deficit of more than 3% of GDP, all sitting members of Congress are ineligible for re-election."
Aug 8, 2011 1:10PM
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What we need is a little less talk and a lot more action.
Aug 8, 2011 4:24PM
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I always love when they say "I could make more in the private sector." Then go and F-ing DO IT already. You VOLUNTEERED to run for office.  I never got paid to VOLUNTEER for my PTO. I don't get paid to VOLUNTEER for Cub/Boy Scouts.

As far as I am concerned all Congress should have a pay cap of $35K what with the taxpayers covering their housing, travel, health care etc etc. Vice pres $40-45K Pres. $45-50K.  They would settle a LOT of our nations debt real quick. 
Aug 8, 2011 3:28PM
avatar
You want jobs? Here is how you get jobs. Raise the taxes on all companies who ship jobs over sea's by 25% All companies who create new jobs here get a huge tax break. Start the infrastructure jobs now. Make sure all the material for all jobs is manufactured in the US... Forget the tax breaks for the wealthiest 2% those so called job creators haven't created anything accept more profit while paying less taxes
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