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500-point Dow plunge is worst since 2008

A worker CBOE S P 500 options pit exhales during final minutes trading Thursday August 4 2011 Chicago. The S

A worker at the CBOE S&P 500 options pit exhales during the final minutes of trading Thursday, August 4, 2011, in Chicago. The S&P 500 Index closed -60.27 (-4.78%), and the Dow Jones Industrial Average closed -512.76 (-4.31%). | John J. Kim~Sun-Times

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Updated: November 2, 2011 7:15PM

There were few places for money to hide Thursday as stock prices came hurtling down.

The steepest drop since the meltdown era of 2008 spared no sector in the stock market. Commodities were no good as a safe haven and even gold and silver, favorites of the pessimists, sustained losses too.

On a day that recorded the highest trading volume in more than a year, the major stock indexes fell by 4 percent to 5 percent, building on earlier losses in Europe. The rout eliminated any gains this year, with the Dow Jones industrial average falling 512.76 points, 4.3 percent, to 11,383.68.

Traders struggled to find a metaphor — dams bursting, straws breaking camels’ backs. All were trying to describe a collection of worries that finally burst to the forefront. They range from sovereign debt in Europe to renewed signs of a sickly economy at home, with skepticism about the U.S. government’s debt hanging over all like a cloud.

“Put it all together and you get an environment where you reduce risk,” said Howard Simons, market strategist at Bianco Research LLC. “You might want to buy, but you’ll get run over. It’s a classic washout kind of a day.”

Headlines from overseas heightened suspicions that Spain and Italy were on their way to join Greece and Portugal as economic basket cases.

On tap for today is the federal government’s report of the jobless rate for July. “That’s the kind of number that could change the momentum or send us into a crash,” said Phil Flynn, analyst at the brokerage PFGBEST.

After finding brief support in the minus-350 point range, the Dow lost another 150 points in the final hour of the session Thursday and closed just above the day’s lows.

In the stock and options exchanges, traders smelled fear. The popular “fear gauge,” the CBOE Volatility Index or VIX, rose 35 percent to reach 31.66. The index, developed by the Chicago Board Options Exchange, uses option prices to project volatility in Standard & Poor’s 500 stocks.

Is there any good news? Try this:

Treasury prices rose as investors crowded into bonds, and that caused already low interest rates to slip more. That helps bond holders, while consumers get a lift because it holds down rates on loans. The average national rate on a 15-year mortgage is 3.54 percent, a record low.

Any easing of commodity prices will improve corporate profits and, perhaps, hiring.

And the concerns about the global economy have sent oil prices down 13 percent over seven straight trading days. It hit a six-month low Thursday and a barrel for September delivery closed at $86.63 in New York trading.

Fred Rozell, retail pricing director at Oil Price Information Service, said oil’s pullback should translate into savings of 20 cents to 35 cents per gallon at the pump.

Thursday’s selloff caused whispers of a big Wall Street word: capitulation. It’s the term for a brutal day that gets all the selling pressure out of the system and lets markets return to a balance between fear and greed.

Marshall Front, chairman of the investment firm Front Barnett Associates LLC, said if Thursday wasn’t a selling catharsis, it’ll come soon. But he said stocks have become oversold by any standard and that his clients want to buy and not run.

“We’ve begun to do some nibbling at stocks we’ve liked for a long time. The valuations look cheap,” Front said.

The S&P 500 index fell 60.27 points, 4.8 percent, to 1,200.07 and the Nasdaq composite index lost 136.68 points, 5.1 percent, to 2,556.39.

Capitulation? Maybe. But another description is dead-on accurate: correction. All the major indexes are down more than 10 percent from recent highs in July, meeting the official definition of a correction.

Volume on all markets totaled more than 14 billion shares.

All 10 industry groups in the S&P 500 saw price declines and for a time, Kraft Foods was the only component of the Dow 30 industrials to post a gain. But by the session’s end, Kraft, which had announced it was splitting itself in two, fell 52 cents to $33.78.

Kraft’s breakup eventually would force a change in the Dow lineup.

Gold briefly hit a record high, then settled $7.30 lower for the day at $1,659 an ounce. Silver lost $2.327 to $39.431 an ounce.

Brian Wesbury, chief economist at First Trust Advisors LP, said the selloff indicates no fundamental change of direction and that stocks are cheap. He noted that companies in the S&P 500 that have reported second-quarter earnings so far are reporting 20 percent higher profits from a year ago.

PFGBEST’s Flynn, however, was unconvinced. “Bad economic numbers have made people realize that the economy is not as strong as some of the S&P earnings would have you believe,” Flynn said.

Contributing: AP

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