A global rout in equities Thursday drove the Dow Jones industrial average down more than 500 points and the S&P 500 index to its worst nine-day slump since March 2009, while two-year Treasury yields plunged to a record low amid concern the economy is weakening.
The Dow Jones industrial average was down 512.76, or 4.31%, to close at 11,383.68; the S&P 500 fell 60.27, or 4.78%, to end at 1,200.07; and the Nasdaq Composite slid 136.68, or 5.08%, to 2,556.39. All numbers are preliminary.
On foreign markets, the Euro STOXX 50, FTSE 100 and DAX each was down 3.4%. The MSCI ACWI slid 3.7%, falling 13% from its May 2 high. Among the major global market indexes, only the Nikkei 225 was in positive territory, up 0.23%.
Two-year note yields fell as low as 0.26%. The 10-year U.S. Treasury yield sank 18 basis points to 2.44%, the lowest since October. The yen depreciated about 4% against the dollar before trimming its loss to 2.4%.
Energy and raw-material producers declined the most among 10 industries in the S&P 500, losing more than 5%. Oil plunged 5.8% to $86.63 a barrel.
Fears that the global economy might relapse into a recession is spurring speculation the Federal Reserve will start another stimulus program. The European Central Bank resumed bond purchases and offered banks more cash to stem the spread of the debt crisis.
Thursday's market slide drove the cost of using options to insure against further declines up the most in almost five months. The Chicago Board Options Exchange Volatility index, or VIX, jumped 22% to 28.51, its highest level since March 16.
“It's unbelievable,” David Joy, chief market strategist at Ameriprise Financial, said in a telephone interview. “It's nervousness. The emotional aspect of this is ticking higher. It's left everybody with this mindset that things are not good. The situation in Europe is getting everyone concerned. We had the impact of the Japan intervention in the currency market. The flight-to-quality trade is going to pick up.”
Concern over the global economy has led Bank of New York Mellon, the world's largest custody bank, to charge institutional clients a fee for “extraordinarily high” cash deposits to stem a flight of capital into the safety of bank deposits.
“I've never seen this happen, not in 25 years,” Gerard Cassidy, an analyst with RBC Capital Markets, said an interview. Other banks may follow BNY Mellon's lead, Mr. Cassidy said.
Investors are seeking the safety of bank accounts as concern increases that the global economy may relapse into a recession and Europe's sovereign debt crisis may worsen. With two-year Treasury yields falling to record lows, banks have little scope to reinvest the deposits at a profit while having to pay the FDIC for the deposits, which have unlimited insurance.