The Dow pared its massive loss in the final hour of trading Monday after fear that the credit crisis is spreading rippled through world markets.
It was a wild ride for the Dow Jones Industrial Average, which fell straight out of the gate this morning, breaching 10,000, then 9,900 and so on. The blue-chip index ended down just 369.88, or 3.6 percent, at 9955.50, after being down as much as 800 at one point. It was the first time in four years that the Dow has closed below 10,000.
To put the Dow's day in perspective, at its lowest point today, the index was still 300 points from the first circuit-breaker trigger levelannounced by the NYSE last week. According to the fourth-quarter guidelines, an 1100-point drop in the Dow before 2 p.m. will halt trading for one hour, a 2200-point drop before 1 p.m. will stop trading for two hours, and a 3350-point drop will shut down trading for the rest of the day, regardless of what time it occurs.
"We'd actually like to see a little more panic," said Matt Cheslock, a senior specialist at Cohen Specialists. "Then you get stocks that go down and bounce," enticing buyers, he said. "Eighteen percent might seem like a discount but when you don't get a bounce it's not. The stock could go down another 2 percent," he explained.
"I’m a little frustrated and disappointed. I thought we had a great setup here for a selling climax," Art Cashin, director of floor operations at UBS, told CNBC. "We could still see a selling climax tomorrow … then turn like a cattle stampedeand roar back. That would be the kind of bottom that could last for months," Cashin said.
All 30 Dow stocks were down for most of the day but American Express and General Electric eked out gains by the closing bell.
The S&P 500 shed 3.9 percent, while the Nasdaq lost 4.3 percent. The CBOE Volatility Index, widely considered the best gauge of fear in the market, soared to a record above 50, ending at 52.05. The last time the VIX closed above 51 was in 1987.
The fear sent a ripple through markets around the world: Latin American markets were at their session lows; trading was halted twice in Brazil after the index dropped 15 percent. European stock markets had their worst day in four years, with most indexes shedding 7 percent or more, amid fear that the credit crisis has spread to European banks. Asian markets also took a hit, with Japan's Nikkei 225 Average dropping more than 4 percent.
"Some of the concern in the market is ... 'Did everyone wait too long? Have events begun to spiral that can't be reached back for?' You hope not. But there is some feel of that in the markets," Art Cashin, director of floor operations at UBS, told CNBC, while wearing, ironically, a Dow 10,000 hat.
Cashin said ideally we'd see a "capitulation selloff" today, maybe even into tomorrow morning, then get a "massive reversal."
Crude oil tumbled more than $6 a barrel to settle at $87.81 a barrel on fears that a global recession will dampen demand for energy. The last time oil ended below $90 was in February.
Energy stocks decline but, like the rest of the market, ended off earlier lows, with ExxonMobil off less than 1 percent and Chevron off 3.2 percent.
One historical note of optimism, such big drops in commodities typically occurs at the end of a market downturn.
Bank stocks took the hardest hit: Citigroup , Bank of America and JPMorgan all ended off more than 4 percent.
Regional banks got clobbered: National City was down more than 27 percent, while Sovereign Bancorp fell 3.8 percent.
Wachovia shares ended down 6.9 percent following news that Citigroup was filing a complaint, citing breach of contract, after Wachovia snubbed its bid in favor of a deal with Wells Fargo. Citi is apparently seeking $60 billion in damages. A source familiar with the matter said Citigroup and Wells Fargo are close to a resolution.
U.S. lawmakers expressed outrage over the collapse of Lehman Brothers during hearings on the matter, saying the firm's executives, board and regulators all share the blame. Former Lehman CEO Richard Fuld testified that regulators were aware of everything Lehman did— including how it priced its distressed assets — before its collapse.
JPMorgan was accused of allegedly precipitating the collapse of Lehman Brothers by freezing Lehman assets days before it filed for bankruptcy protection, UK newspaper the Sunday Times reported.
With hopes that the bailout package voted by Congress would calm the markets dashed, investors are now looking to the Federal Reserve to make the next move. Traders expect the Fed to slash the current 2 percent target Fed funds rate by a half point before its next meeting, Oct. 28.
Technology stocks also took a pretty good beating amid worries that the global slowdown is going to clamp down on tech spending, both by businesses and individuals.
Research In Motion , Google and Microsoft ended lower but Apple recovered by the end of the day, gaining 1.1 percent.
EBay lost 5.5 percent after the online auctioneer announced plans to reduce its work force by 10 percent and said it expects to beat its third-quarter earnings forecast. The company also announced $1.3 billion in acquisitions — the Bill Me Later payment service and a Danish online-classifieds firm.
ImClone was among the few stocks that held onto a gain all day following news that it will be bought by Eli Lilly for $70 a share after rejecting a sweetened offer from Bristol-Myers Squibb .
The offer from Eli Lilly values ImClone, which makes the cancer drug Erbitux, at $70 per share, a premium of 51 percent to ImClone's closing share price on July 30, the day before Bristol-Myers made an offer of $60 a share.
Pilgrim's Pride tumbled 26 percent amid a fresh wave of fears that the chicken producer will be able to secure credit amid the global turmoil.
MONDAY: House Oversight hearing on Lehman collapse
TUESDAY: Bernanke, Stern speak; Fed minutes; consumer credit; Earnings season kicks off with Alcoa, Yum Brands; Second presidential debate
WEDNESDAY: Weekly mortgage applications; Fed's Plosser speaks; Pending-home sales; Weekly crude inventories; Earnings from Costco, Monsanto and Ruby Tuesday
THURSDAY: Retailers report Sept. sales; Bank of England announcement; Weekly jobless claims; Wholesale trade; Natural-gas inventories; Fed's Stern speaks; Earnings from Chevron
FRIDAY: Import/export prices; Trade gap; Treasury budget; Earnings from GE