Wall Street stocks plunged today, with the Dow Jones industrials sliding 500 points, or 4.4%, in their worst point drop since the September 2001 terrorist attacks.
Investors reacted badly to a shake-up of the financial industry following the meltdown of Lehman Brothers Holdings and Merrill Lynch.
Stocks also posted big losses in markets across much of the globe as investors absorbed Lehman’s bankruptcy filing and what was essentially a forced sale of Merrill Lynch to Bank of America for 50 billion dollars in stock.
While those companies’ situations had reached some resolution, the market remained anxious about American International Group (AIG), which is seeking emergency funding to shore up its balance sheet.
A faltering of the world’s largest insurance company likely would have financial implications far beyond that of Lehman, the largest US bankruptcy.
The swift developments that took place yesterday are the biggest yet in the 14-month-old credit crises that stems from now toxic sub-prime mortgage debt.
Investors are worried that trouble at AIG and the bankruptcy filing by Lehman, felled by 60 billion dollars in bad debt and a dearth of investor confidence, will touch off another series of troubles for banks and financial institutions that may be forced to further writedown the value of their own debt assets.
Wall Street had been hopeful six months ago that the collapse of Bear Stearns would mark the darkest day of the credit crisis.
AIG’s troubles a week after its stock dropped 45% are worrisome for some investors because of the company’s enormous balance sheet and the risks that troubles with that companies finances could spill over to the companies with which it does business.
AIG, one of the 30 stocks that make up the Dow industrials, fell 6.93 dollars, or 57%, to 5.21 dollars today as investors worried that it would be the subject of downgrades from credit ratings agencies.
While the market was down sharply for much of the session, the selling accelerated in the last hour.
According to preliminary calculations, the Dow fell 504.48, or 4.42%, to 10,917.51 moving below the 11,000 mark for the first time since mid-July.
Broader stock indicators also fell. The Standard & Poor’s 500 index declined 58.74, or 4.69%, to 1,192.96, and the Nasdaq composite index fell 81.36, or 3.60%, to 2,179.91.
The S&P 500 broke through the 1,200.44 trading low seen in mid-July, a key level traders watch.
Much of the trading day until about the last hour had been orderly because the market had tested another key level early in the session and managed to stay above it. But the eventual drift lower prompted some investors to hit the “sell” button.