Stocks took a sharp nosedive in another choppy day Monday to finish at session lows as investors fled from risky assets following S&P's downgrade of U.S.'s credit rating last week in addition to ongoing economic jitters.
The Dow Jones Industrial Average plunged 634.76 points, or 5.55 percent, to finish at 10,809.85, well below the psychologically-significant 11,000 mark. The move marks the blue-chip index's biggest point and percent drop since Dec. 1, 2008.
BofA and Alcoa were the top laggards on the index.
The S&P 500 plummeted 79.92 points, or 6.66 percent, to close at 1,119.46, its lowest close since Sept. 10, 2010.
Nasdaq sank 174.72 points, or 6.90 percent, to end at 2,357.69, its lowest close since October 4, 2010.
August is already on track to be the worst month for the S&P and Nasdaq since Oct. 2008.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, spiked above 40 to touch its highest level since Mar. 2009.
All 10 S&P sectors ended lower, led by banks, energy and materials. Financials have plunged more than 20 percent this year.
Volume was very heavy with the consolidated tape of the NYSE at 9.29 billion shares, while 2.54 billion shares changed hands on the floor. That exceeded last Friday's heavy volume, which was the heaviest since the Flash Crash on May 6, 2010. According to Dow Jones, this was the 4th largest volume day in history on the NYSE.
“Once we took out Friday’s lows, it was like a trapdoor opened,” Art Cashin, director of floor operations at UBS Financial Services told CNBC. “This is very heavy volume again and that tells me that we’ve got people liquidating to raise cash."
Moody's said while they are maintaining the U.S.'s AAA status, the agency said it has doubts over the long-term enforceabilityof the budget cuts already decided by Congress.
And in its latest move, S&P also lowered Fannie Mae, Freddie Mac and Federal Home Loan Bank's debt to AA-plus from AAA.
S&P came in for significant criticism from U.S. Treasury Secretary Timothy Geithner, who said the rating agency showed "terrible judgment" in lowering the U.S. government’s credit rating.
Meanwhile, President Obama said financial markets around the world "still believe our credit is AAA and the world's investors agree," although his speechdid little to cheer up the market.
David Beers, global head of sovereign ratings at S&P, defended the firm's position, despite the discovery of a $2 trillion error in the firm's calculation of the projected debt to GDP ratio for the U.S.
Meanwhile, S&P also revised Berkshire Hathaway's rating outlook to "negative" from "stable."
Incidentally, this comes after Warren Buffett said S&P's downgrade of the U.S. "doesn't make sense" and told CNBC he was not changing his mind about Treasurys based on S&P's downgrade.
Among commodities, U.S. light, sweet crude fell sharply to settle at $81.31 a barrel, the lowest level since Nov. 2010. Gold surged to a record high above $1,700 an ounce as investors flocked to the precious metal as a safe-haven play. JPMorgan said gold prices could soar as much as $2,500 an ounce by year-end on "very high" volatility.
Bank stocks led the market deep into the red, led Bank of America, which sank more than 20 percent. AIG said it planning to sue the bank to recover more than $10 billion in losseson $28 billion of investment in mortgage-backed securities.
Meanwhile, widely-followed hedge fund manager David Tepper of Appaloosa Management said he is selling his BofA and Wells Fargo stakes and decreasing his position on Citigroup. (Read More: Tepper's Appaloosa Exits Financials) And influential financial analyst Mike Mayo downgraded BofA stock to "underperform" from "outperform."
Verizon declined after almost 45,000 employees went out on strike over the weekendamid a contract dispute.
McDonald's slipped even after the fast-food chain posted a 5.1 percent sales gainat established stores.
Coca-Cola ended lower even after Goldman Sachs added the beverage giant to its "conviction buy list." And P&G also finished down after Bernstein upgraded the consumer goods manufacturer to "outperform" from "market perform." The two companies were among the only stocks that struggled to stay higher earlier in the session.
Warren Buffett's Berkshire Hathaway unit
European shares sank finish at two-year lows, despite an announcement from the ECB that it was entering the bond market to buy Italian and Spanish sovereign debt.
On Tap This Week:
TUESDAY: NFIB small biz optimism index, productivity and costs, 3-yr note auction, FOMC mtg announcement; Earnings from Disney
WEDNESDAY: Weekly mortgage apps, wholesale trade, oil inventories, 10-yr note auction, treasury budget; Earnings from Macy's, Cisco
THURSDAY: International trade, jobless claims, 30-yr bond auction, money supply; Earnings from Kohl's, Nordstrom, Nvidia
FRIDAY: Retail sales, consumer sentiment, business inventories; Earnings from JCPenney
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