US stocks decrease the most since 2008
The Dow Jones plunged 632 points as about $2.5 trillion was erased from global equities.
Equities extended losses after the ratings cut prompted S&P to lower debt rankings on Fannie Mae, Freddie Mac and other lenders backed by the government and reduce the credit outlook on Warren Buffett’s Berkshire Hathaway Inc. to negative. President Barack Obama, breaking his silence on the downgrade, said the main obstacle facing the US is the “lack of political will in Washington” to solve the country’s problems.
“If you’re an investor and you say ‘I’m worried about what’s going on in the world, I’m worried about liquidity and safety,’ you basically have no place to go other than the Treasury market,” Nick Sargen, chief investment officer at Fort Washington Investment Advisors in Cincinnati, said in a telephone interview.
On the first trading day after the S&P downgrade, investors retreated from riskier assets on concern the global economy will continue to slow. They poured money into haven assets such as Treasuries, gold, and the Swiss franc, while benchmark equity indexes for Europe, Australia, China and smaller US companies extended losses to more than 20% from recent peaks, the level some investors consider a bear market.
Spanish and Italian bonds were exceptions as yields on 10-year notes slid after the ECB bought the debt to stem the spread of the region’s debt crisis.
The S&P 500’s three-day slide of 11% is the worst since November 2008. The gauge has plunged about 17% since July 22 to mark the worst drop since March 2009, during the final throes of the bear market that dragged the index to a 12-year low.
About 30 stocks fell for each that rose on US exchanges in the broadest selloff since Bloomberg began tracking the data in 2004. Almost 18 billion shares changed hands on the nation’s bourses, the most since May 2010.
The dollar depreciated 1.7% against the Swiss franc and earlier weakened as much as 2.5% to a record 74.83 centimes. The dollar dropped 0.9% against the yen, which strengthened against all 16 peers except the franc. The currencies of Australia and New Zealand declined against most peers.
Industrial and banking shares led losses in Europe, with 34 shares falling for each that rose in the Stoxx Europe 600 Index. Bank bonds in Europe are the riskiest ever as the ECB was said to be snapping up Italian and Spanish government debt whose soaring yields hurt lenders already nursing Greek writedowns.
Spain’s 10-year note yield slid 88 basis points to 5.16%. Greece’s yield decreased 15 basis points, with the similar-maturity Irish yield retreating seven basis points. The cost of protecting western European government debt against default fell 6 basis points to 280, according to the Markit iTraxx index of credit swaps.
The ECB said it welcomed efforts by Spain and Italy to reduce their budget deficits and said it will “actively implement” its bond-purchase programme, according to a statement issued after an emergency Governing Council conference call last night.
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