Market takes a record plunge

A trader took in the turn of events at the New York Stock Exchange. Many investors rushed to the safety of US Treasury securities. (Brendan McDermid/Reuters)

The Dow Jones industrial average suffered its worst one-day point decline in history as investors ran for safety after Congress failed to pass a bailout for the nation's beleaguered financial industry.

The sheer size and scope of losses in the major stock markets left many investors stunned. The Standard & Poor's 500 index lost 8.4 percent of its value, the most in more than 20 years. The entire stock market lost more than $1 trillion of value just yesterday.

The 777.68-point drop in the Dow exceeded the benchmark index's previous single-day point decline set after the Sept. 11, 2001, terrorist attacks. However, on a percentage basis, the 6.98 percent decline does not rank in the top 10 of losses for the Dow.

The Dow, an index of 30 of the nation's top industrial companies, gyrated wildly in the 40 minutes that voting in the House of Representatives on the bailout bill was being broadcast on television, including a dizzying 400-point plunge during one 15-minute period. Traders on the New York Stock Exchange booed when the closing bell rang.

The bailout defeat reverberated around the world, with stock markets in other regions recording major losses; Brazil's stock exchange was forced to shut down in the afternoon after losses exceeded 10 percent.

The carnage spread to Asia today. All major stock markets in the region tumbled sharply, succumbing to heightened fears of a broader global credit crisis. Japan's benchmark Nikkei 225 index shed more than 544 points, or 4.6 percent, to 11,199.07 after losing 1.3 percent yesterday. Key indexes in Australia and New Zealand were both down about 4 percent, Seoul's Kospi lost 3.5 percent, and Hong Kong's Hang Seng index declined 5.5 percent.

Even before the House voted, credit markets had continued to tighten and by midday many had virtually stopped trading, creating further problems for many companies that want to borrow money. Meanwhile prices for commodities, including oil, plunged on fears that a broader, deeper economic recession would reduce demand.

"It's a full-blown crisis and there's nowhere to hide," said money manager Stephen Demirjian of Integrity Capital Management in Boston.

The investment world's extreme aversion to anything that looked risky was reflected in the rush to the safe haven of US Treasury securities, which drove prices sharply higher, and correspondingly pushed yields lower. Rates on three-month Treasury bills plunged to 0.34 percent, meaning investors were willing to accept practically no return, rather than risk losing money outright in other securities. US Treasuries are considered among the safest investments because the federal government guarantees it will repay its debts.

Big declines like these often get stock mutual fund managers looking for buying opportunities. And while some yesterday said they saw many deals yesterday, they said there was no point in fighting the negative sentiment that had gripped the markets.

"In the near term, you just have to get through it," said John Carey, who helps oversee $13 billion as a portfolio manager at Pioneer Investments in Boston. "There's a lot of anxiety over being invested in really anything other than Treasury bills at the moment."

The rout was not limited to financial stocks. Oil companies, manufacturers, and even high-fliers like Apple Inc. and Google Inc. all took a pounding yesterday, reflecting investors' deep concerns about the scale and scope of a potential economic slowdown. The Nasdaq stock index, dominated by technology stocks and other growth companies that depend on a solid economy, lost 9.1 percent.

The last time the S&P 500 lost this much was October, 19, 1987, so-called Black Monday, when the index dropped 20.5 percent amid a global crash that brought the 1980s bull market to an end.

Yesterday, the only one of the S&P index's 500 stocks to gain value was the Campbell Soup Co. Overall the index lost 8.8 percent.

Around the world, the stock market news was no better. The MSCI World index, which tracks 23 markets in the developed world, lost up to 6.8 percent, the worst one-day setback in the benchmark's 38-year history.

High anxiety has been a common state in credit markets for weeks and yesterday's news from Washington did nothing but make investors more nervous.

The availability of credit to businesses, from short-term loans to corporate bonds, came under intense pressure or dried up entirely yesterday. For example, after normal trading yesterday morning, corporate bonds - debts issued by companies -stopped trading for a period when the failure of the bailout plan became clear.

"There was just this universal moan," Kathleen Gaffney, co-manager of the Loomis Sayles Bond Fund in Boston, said of the vote results. "I heard it all around the office and watched the stock market drop like a stone. Everyone was in disbelief and then the corporate [bond] market just stopped trading because no one knew how to price anything."

Meanwhile another barometer of economic sentiment among investors, the Reuters/Jefferies CRB index of commodity prices took its hardest fall since 1956. Prices of everything from oil to sugar sunk. Crude oil for November delivery fell $10.52, or 9.8 percent, to $96.37 per barrel, the largest one-day percentage decline since 2001.

Steven Syre can be reached at syre@globe.com.