Wall Street on three-year low on Wed
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U.S. stocks dropped to a three-year low on Wednesday as the U.S. rescue of insurer AIG failed to calm a crisis of confidence in global markets and banks were scared to lend to each other.
The Dow fell almost 450 points and the Nasdaq fell nearly 5 percent in its worst day since the aftermath of the Sept. 11 attacks in 2001 as rattled investors worried about who could be the next victim of the global credit crisis.
Of the two remaining major investment banks, Goldman Sachs stock suffered its biggest one-day drop ever. Morgan Stanley stock had its worst day in at least 15 years as investors worried whether it would survive as an independent investment bank in the current environment, after Lehman Brothers Holdings went bankrupt and Merrill Lynch was forced to sell itself this weekend.
"The fear is, 'Who is next?'" John O'Brien, senior vice president at MKM Partners LLC in Cleveland told Reuters. "It almost feels like people scour the books and say, 'Who is the next likely target that we can put a short on?' and that spreads continuous fear."
The Dow Jones industrial average fell 449.36 points, or 4.06 percent, to 10,609.66, its lowest level since November 2005.
The S&P 500 fell 57.20 points, or 4.71 percent, to 1,156.39, its lowest level since May 2005 and its biggest percentage drop since Sept. 17, 2001, when the markets reopened after the September 11 attacks.
The Nasdaq also fell the most since Sept.17, 2001. It shed 109.05 points, or 4.94 percent, to 2,098.85, its lowest level since August 2006.
Markets in Asia also dropped in early trading on Thursday, as fears of a global credit crunch drove investors to dump stocks and park cash in safe havens like gold and Treasuries.
The Nikkei 225 average fell to a three-year low, down 3.6 percent. In Hong Kong, the Hang Seng Index tumbled 7.6 percent, China's CSI 300 was down 5.8 percent and Taiwan's Taiex Index was down 3.6 percent.
Tuesday's $85 billion bailout of American insurer A.I.G., rather than reassuring investors in Asia, seems to have stoked fear and confusion, strategists said, because it came after Lehman Brothers was allowed to file for bankruptcy.
Investors feel that if an institution is large enough, it will be bailed out, but if it is smaller, there is no guarantee it will, Brian Hunsaker, an Asia researcher at Fox, Pitt, Kelton in Hong Kong told the New York Times. "If everyone knew for certain there would be no more bankruptcies of financial institutions," he said, "markets would be up."