Market Upheaval: S&P Down 6.7%, Oil Down 7%, Gold Up 4.2%

Bikram Pandey
08 Aug, 2011
New York City

The S&P 500 index plunged 6.6% and the Nasdaq dropped 6.9% after investors reacted on the first day after the debt downgrade. The indexes extended losses of more than 7% last week and are bracing for more correction tomorrow morning. Gold added 4.3% and oil declined 4.5%. European markets fell 4%.

[R]5:30 PM New York – The S&P 500 index plunged 6.7% and the Nasdaq dropped 6.9% after investors reacted strongly on the first day of trading. The indexes extended losses of more than 7% last week and are bracing for more correction tomorrow morning. European markets are now in the bear market phase with losses of more than 25% from the highs of the year. Gold added 4.2% and oil declined 7%.[/R]

The U.S. stocks plunged on Monday after investors reacted for the first time to the U.S. debt rating downgrade. The rating cut prompted a chorus of discordant voices from the Washington lawmakers criticizing the decision but also prompted renewed worries of economic slowdown.

The market jitters were also compounded as the European sovereign debt problem forced the European Central Bank to expand its bond buying program to include bonds of Italy and Spain. Currently the central bank is only buying bonds of Greece, Portugal and Ireland.

The S&P 500 and the Nasdaq dropped more than 3% in the early volatile trading after market pessimism grew and investors reacted to the loss of highest rating for the U.S. debt. The rising fears of second recession also kept buyers away and by early afternoon the indexes dropped 5% but managed to trim losses to 3.5%. In the final half an hour the indexes resumed the slide and closed at its lowest.

The S&P 500 index plunged more than 6% and extended losses of 7% in the last week and the Nasdaq plunged more than 7% after declining nearly 8% last week and the Dow dropped 5.6% after plunging more than 6% last week.

The worst single day loss for the Nasdaq and the S&P 500 indexes since December 1, 2008 and the Dow decline in points was the sixth largest fall In history.

For the year, the S&P 500 and the Nasdaq are down more than 11% and the Dow is down 6.6%.

Trading volume on the New York Stock Exchange was more than 8.5 billion shares, twice the average of 4 billion shares average for first seven months in a year.

European investors were also nervous after G7 statement failed to provide more clarity and Germany resisted calls to increase the size of the rescue funds and the ECB pledged to defend bond market.

European markets struggled in the morning trading after investors reacted to the U.S. debt downgrade and the ECB said it will actively participate in defending bonds of Italy and Spain. Resources linked companies led the decliners and the euro traded near its recent levels.

Germany and UK are nearly 20% lower from the peak and Italy, Switzerland and Greece are more than 25% down from the highs of the year.

Stocks in Japan plunged for the second day after the U.S. debt was downgraded for the first time in seventy years and Europe faces a rising bill to defend sovereign bonds of Spain and Italy. Trading companies declined after oil and base metal fell. Honda edged lower after it announced worldwide recall of 2 million cars.

Australian stocks extended losses by 3% and the benchmark index fell for the fifth day in a row to drop below 4,000 for the first time in two years. The benchmark index is down more than 20% from its peak and in bear territory as resources linked companies and banks declined.

Commodities, Bonds and Currencies

The 10-year U.S. bond yield decreased to 2.33% and 30-year U.S. bond closed down at 3.17%.

The U.S. dollar increased at $1.4200 to one euro and fell against the Japanese yen to 77.70 yen.

Immediate delivery futures of Texas crude oil decreased $6.30 to $80.53 a barrel and futures of natural gas increased 0.009 cents to $3.95 per mbtu and gasoline price decreased 13.23 cents to 267.26 cents a gallon.

In metals trading, copper decreased 19.00 cents to $3.92 per pound, gold increased $62.70 to $1,714.50 per ounce and silver increased $0.53 to $38.74.