August 4th , 2011 from CNBC.com
Dow Sinks 500, Worst Day Since Dec. 2008
Stocks plunged sharply Thursday, with the Dow down more than 500 points, in its worst one-day drop since December 2008.
All three major averages tumbled into negative territory for the year as investors were rattled over an intensifying global economic slowdown and ahead of the widely-followed monthly unemployment report.
The major indexes are firmly in negative territory for the year. In addition, all three averages fell into “correction territory,” defined by a drop of 10 percent from its peak from its intraday high in Apr. 29.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, surged more than 35 percent. The last time the VIX closed this high was on July 1, 2010.
Volume was at its highest level this year with the consolidated tape of the NYSE at 7.15 billion shares, while 1.82 billion shares changed hands on the floor.
“We’re not steering this bus—it’s all coming from Europe,” Art Cashin, director of floor operations at UBS Financial Services told CNBC. “We’re hearing reports of funds drawing out of European banks and we’re pretty close to something that might turn ugly.”
“It may translate into a strain on the financials system and earnings on the multinationals, which have been carrying the load for Wall Street,” Cashin added.
European shares hit a two-year low. The Bank of England and European Central Bank both left rates unchanged, but it did little to improve investor confidence. The ECB signaled it was buying government bonds in response to a deepening European debt crisis.
Investors were also spooked after ECB President Jean-Claude Trichet said “downside risks may have intensified.”
“It is true that we are experiencing a high level of uncertainty, not just in the euro zone,” he said.
On the economic front, weekly jobless claims were little changed last week, edging down to a seasonally adjusted 400,000, according to the Labor Department.
“The jobless claims number was not too encouraging … we need to see more of a significant improvement than the data just squeaking by,” said Doreen Mogavero, president and CEO of Mogavero Lee & Company.
The claims news comes ahead of Friday’s government non-farm payroll data, which likely increased 85,000 last month, according to a Reuters survey, after rising only 18,000 in June. The unemployment rate is expected to hold steady at 9.2 percent.
“We’ve reduced our equity exposure by half at the end of the second quarter,” said Rob Stein, portfolio manager and senior economist of Astor Asset Management. “We’ll need to see the economic data stabilize.”
Adding to day’s woes, JPMorgan [JPM 37.92 -1.98 (-4.96%) ] cut its third-quarter U.S. economic growth forecast by 1 percent, pointing to recent developments in the U.S. economy. The firm added that it doesn’t expect the Fed to raise interest rates until at least 2013.
The dollar soared against a basket of currencies. The greenback’s surge came amid a weakening economic outlook and moves by Japan to intervene in the forex market to bolster the yen.
Meanwhile, gold reversed its gains, trading below $1,653 an ounce as investors opted for cash to cover losses outside of the bullion market amid deepening losses on Wall Street.