September 15, 2008
As Investors withdrew after a shakeup of the financial industry that took out two storied names, Lehman Brothers Holdings Inc. and Merrill Lynch & Co., Monday, the Dow tumbled 504.48 points, or 4.42 percent, to 10,917.51, producing the worst day on Wall Street in seven years.
It was the worst point drop for the Dow since it lost 684.81 on Sept. 17, 2001, the first day of trading after the terror attack. In percentage terms, the drop was the steepest since July 19, 2002. It was also the sixth-largest point drop in the Dow, just behind the 508.00 it suffered in the "Black Monday” October 1987 crash. The Dow is now down about 23 percent from its record high of 14,198.09 last October.
The Standard & Poor's 500 index declined 59.00, or 4.71 percent, to 1,192.70. The decline is also its biggest drop since the September 11, 2001 terrorist attacks and the first time it closed below 1,200 in three years.
The Nasdaq composite index fell 81.36, or 3.60 percent, to 2,179.91; that was its worst point loss since Jan. 4.
Broader U.S. stock indexes couldn’t avoid the debacle. The Dow Jones Wilshire 5000 Composite Index, an index that measures the value of 5,000 U.S.-based companies, fell 4.53 percent Monday, giving investors an overall paper loss of about $700 billion. Meanwhile, the Russell 2000 index of smaller companies fell 30.50, or 4.23 percent, to 689.76.
Merrill rose 1 cent to $17.06, while Bank of America fell $7.19, or 21 percent, to $26.55.
The pullback, which erased about $700 billion in shareholder wealth, occurred across much of the globe as investors absorbed Lehman's bankruptcy filing, which is the largest U.S. in terms of assets, and what was essentially a forced sale of Merrill Lynch to Bank of America for $50 billion in stock. The swift developments that took place Sunday are the biggest yet in the 14-month-old credit crisis that stems from now toxic sub-prime mortgage debt.
It was by far the most stomach-churning single day since a financial crisis began to bubble up from billions of dollars in rotten mortgage loans that have crippled the balance sheets of one bank after another and landed mortgage giants Fannie Mae and Freddie Mac under the control of the federal government in the previous week.
Investors are worried that the bankruptcy filing by Lehman and a lack of investor confidence will touch off another series of troubles for banks and financial institutions that may be forced to further write down the value of their own debt assets.
The market remained anxious about American International Group Inc., which is seeking funding to shore up its balance sheet. AIG's troubles are worrisome for some investors because of the company's enormous balance sheet and the risks that its troubles could spill over to the companies with which it does business. Its stocks fell $7.38, or 61 percent, to $4.76 as investors worried that it would be the subject of downgrades from credit ratings agencies.
Equity sell-off had happened earlier abroad before the U.S. market concluded the trading day. Britain's FTSE 100 fell 3.92 percent, Germany's DAX index lost 2.74 percent, and France's CAC-40 fell 3.78 percent.
Bond prices surged as investors fled to the security of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, plunged to 3.41 percent from 3.72 percent late Friday.
The dollar was lower against other major currencies, while gold prices rose benefiting from a "flight to safety" trade in the wake of Lehman's bankruptcy, but oil fell to its lowest level since mid-February.