Spencer Platt
Global stocks plunged on Thursday amid renewed concerns about the health of the global economy and a failure among central banks to do much about it.
In North America, the Dow Jones industrial average closed at 10,733.83, down 391.01 points or 3.5 per cent. The broader S&P 500 closed at 1129.56, down 37.2 points or 3.2 per cent. In Canada, the S&P/TSX composite index closed at 11,562.51, down 392.50 points or 3.3 per cent. One consolation: Both the Dow and the TSX had been down more than 500 points at their lowest point during the day, before rebounding modestly during the final 30 minutes of trading.
The carnage extended round the world. In Japan, the Nikkei 225 fell 2.1 per cent in overnight trading. In Europe, the U.K.'s FTSE 100 fell 4.7 per cent and Germany's DAX index fell 5 per cent.
Commodities sank. Crude oil briefly dipped below $80 (U.S.) a barrel. Gold failed as a haven investment, falling to $1,741.70 an ounce, down $66.40. For safety, investors preferred the allure of U.S. government bonds, sending the yield on the 10-year Treasury bond to a multi-decade low of about 1.71 per cent. Adding to the tumult, the U.S. dollar surged, sending the Canadian dollar down to 97.4 cents – its lowest level in nearly a year.
While the equities selloff was particularly intense on Thursday, the rumblings of a sharp drop among major stock market indexes actually began on Wednesday afternoon, when the Dow fell nearly 300 points soon after the U.S. Federal Reserve released its monetary policy statement. That statement raised new concerns about the economy, noting that "there are significant downside risks to the economic outlook, including strains in global financial markets."
At the same time, the Fed introduced a policy action dubbed Operation Twist, selling short-term bonds and buying longer-term bonds in an effort to hold down long-term borrowing costs. Yet, reaction to the move was skeptical, with some observers noting that it merely signified that the Fed had run out of options for stimulating the economy in any meaningful way.
Meanwhile, there were fresh economic concerns on Thursday. China and Europe revealed a drop in their respective purchasing managers indexes, reflecting economic slowdowns. FedEx Corp., seen by some market watchers as a bellwether stock for economic activity, reduced its full-year profit guidance and warned of weak Asian shipments in particular. And while U.S. initial jobless claims fell by 9,000, they remained too high to provide any comfort, at 423,000.
The declines within the stock market were broad and hit economically sensitive stocks particularly hard. In the U.S., Caterpillar Inc. fell 6.9 per cent, Alcoa Inc. fell 6.7 per cent and Bank of America Corp. fell 5 per cent. However, even defensive stocks declined: Procter & Gamble fell 2.9 per cent and Coca-Cola Co. fell 2.1 per cent.
In Canada, commodity producers led the selloff. Suncor Energy Inc. fell 6.8 per cent, Teck Resources Ltd. fell 6.7 per cent and Barrick Gold Corp. fell 6.3 per cent. Among financials, Royal Bank of Canada fell 2.6 per cent and Manulife Financial Corp. fell 3.5 per cent.
David Berman