The Dow closed down 513 points, or 4.3 percent, at 11,384, registering its ninth-largest point drop in history and the largest since Dec. 1, 2008. The S&P 500 fell 60 points, or 5 percent, to 1,200 in a broad sell-off that affected every major industry group. The Nasdaq composite index also lost 5 percent to end at 2,556.
Even before the U.S. market opened, stock indexes in Europe plunged from 3 percent to 4 percent in Thursday trading, and Brazil’s main stock index took an even heavier hit, plummeting by 5.7 percent. Asian trading continued the slide Friday morning, with indexes in Japan, South Korea and Australia all down by 4 percent.
With the stock market in full retreat, investors piled into safe havens from the storm. Gold prices soared to a record of $1,684.90 an ounce before retreating.
The prices of oil and other commodities that rise when the economy is doing well plummeted. The 6 percent drop in premium crude prices to $86.53 in New York trading likely will lead to significantly lower gasoline prices in the weeks ahead, which could provide a significant boost for beleaguered consumers.
Only days after America’s own debt crunch rocked global markets, investors dove into Treasury bonds, sending the yields on Treasury’s two-year note to a record low of 0.265 percent. Such lower interest rates also are a silver lining in the crisis, as they will filter through to indebted consumers and corporations as well as the debt-strapped federal government.
Michael Pento, senior economist at Euro Pacific Capital, said that despite the troubling outlook, the U.S. dollar and Treasury market are benefiting from the even worse debt problems in Europe.
While the U.S. government’s public debt has risen to about 65 percent the size of the U.S. economy, the Italian government’s debt is twice that size.
As a result, the average interest rate that Italy pays on its 10-year bonds has doubled to 6 percent from 3 percent earlier this year — nearing levels that are prohibitively high for the nation, he said. U.S. 10-year bond yields fell to 2.42 percent Thursday by comparison.
“A doubling of interest-rate expenses spells disaster” for Italy and the European Union, Mr. Pento said. The EU has few tools to assist a country as large as Italy, and countries there already have been feuding over the need to bail out much smaller debtors, such as Ireland and Greece.
In about the only remedy available, the European Central Bank on Thursday signaled that it will resume its program of buying troubled nations’ bonds in an attempt to help lower the interest rates they pay and relieve banks of their sovereign debt load.