U.S. equities plunged today as investors dumped financial stocks amid fears financing will be difficult and costly to obtain for a sector that lives on leverage.
The Dow Jones industrial average closed down 449.36, or 4.06%, at 10,609.66; the S&P 500 fell 57.20, or 4.71%, ending at 1,156.39; and the Nasdaq composite closed down 109.05, or 4.94%, at 2.098.85.
The mood of investors soured following the Federal Reserves takeover of troubled insurer American International Group Inc. and Lehman Brothers Holdings Inc. fire sale of its North American brokerage and investment banking business to Barclays PLC.
Shares of the two surviving major Wall Street firms, Goldman Sachs Group and Morgan Stanley, posted losses that fluctuated between 15% and 30% as investors wondered how much business would be left for the two independent investment banks.
Its a panicky and irrational reaction to circumstances, said David Resler, chief economist at Nomura Securities International. The notion that credit is more difficult and expensive to obtain is not new. This has been the case for months, and none of this has changed over the past 24 hours.
The latest economic data added to the negative sentiment amid belief that the credit crunch will not be fully resolved until the housing market recovers. U.S. housing starts dropped 6.2% in August to its lowest level since January 2001, according to data released this morning by the Commerce Department.
Also, the U.S. dollar weakened and the light sweet crude oil contract for October delivery gained $6.01 a barrel to close at $97.16 on the New York Mercantile Exchange.