The downgrade of the U.S.'s credit rating sparked a global selloff on Monday, pushing the Dow Jones Industrial Average to its sharpest one-day decline since the financial crisis in 2008.Interesting how Treasury securities remained a safe haven. That can't go on forever.
In scenes reminiscent of three years ago, selling accelerated as the day went on, and investors were forced to sell to meet margin calls from lenders demanding more collateral. The Dow ended the day down 634.76 points, or 5.5%, at 10809.85, its lowest close since last October. Trading volume of stocks listed on the New York Stock Exchange hit the fourth-highest level in history.
It was the Dow's biggest percentage drop since December 2008 and its sixth-largest point decline ever. Other major stock indexes also fell heavily. Traders also dumped corporate bonds and industrial commodities.
Investors fled to the traditional refuges: gold, currencies of safe-seeming countries such as Switzerland, and, ironically, the very securities that Standard & Poor's downgraded on Friday, U.S. Treasury bonds. For most investors, Treasurys seemed a lot safer than stocks.
Tuesday morning in Asia, Tokyo shares opened lower, falling 3.4% in the first minutes of trading.
The Financial Stability Oversight Council, a group of U.S. regulators led by Treasury Secretary Timothy Geithner, held an emergency conference call Monday afternoon to discuss the financial-market volatility, a person familiar with the call said.
"There's probably as much uncertainty as we've seen since 2008," said Eric Pellicciaro of asset manager BlackRock's Fundamental Fixed Income division, which has $612.5 billion in assets under management. "There's a general feeling that policy options are few and far between. There's a feeling that fiscal austerity is coming at the worst possible time."
I'll have more on this tonight.