Shares in every major sector spiraled downward on Monday as the market dropped to its lowest point in over a year amid anxiety over the European debt crisis and the struggling United States economy.
The nation’s biggest banks were once again hard hit, with Citigroup and Bank of America plunging almost 10 percent while shares of regional and community banks also plummeted. American Airlines fell by almost a third to just below $2 on speculation that it could declare bankruptcy.
The sharp sell-off brought Wall Street to the edge of a bear market — generally a fall of 20 percent from a recent high — as the Standard Poor’s 500-stock index showed a 19.4 percent decline since its April 29 high. That, in turn, could unleash yet another wave of negative news that could scare investors and push stocks even lower.
“People are really panicked, so any more incremental news in that direction, bad headlines if you will, are certainly things that may spur momentum to the downside,” said Jeffrey Kleintop, chief market strategist for LPL Financial.
On Monday, the S. P. 500 fell 2.85 percent, or 32.19 points to 1,099.23. The Dow Jones industrial average was off 258.08 points, or 2.36 percent, to close at 10,655.30. The Nasdaq composite index dropped 3.29 percent. Major stock markets in Europe and Japan also closed lower.
Seeking safer assets, investors flocked to Treasury bonds. Yields on the benchmark 10-year note fell to 1.75 percent from 1.92 percent late Friday. Fears that the problems in Europe might spread across the Atlantic and push an extremely fragile economy back into a recession have been looming for more than a year. With the job market still weak and the confidence of businesses and consumers in tatters, investors seem to be lurching from one piece of bad news to another.
Through the summer, for every big gain in stocks there were twice as many big losses, with 13 days of drops of 2 percent or more compared with seven days of gains of at least 2 percent. The rises were often driven by hopes that the European debt crisis could be contained, but then were wiped out by fears of cascading defaults and bank runs, and no real solution to too much debt and too little growth in Europe.
Even glimmers of hope, like reports on Monday showing stronger-than-expected manufacturing and construction data, were overshadowed by the unknowns about what will happen in Europe.
“That uncertainty has the markets completely shell-shocked, in jitters,” said Nariman Behravesh of IHS Global Insight.
In Europe, stock markets closed lower as finance ministers from the euro zone countries met Monday to try to approve a new installment of aid to Greece. But tension over the country’s inability to impose tough structural changes has stalled the talks, and no decision is expected this week.
Investors are also awaiting a meeting of the European Central Bank on Thursday, and many expect the bank to cut interest rates. Analysts say such action could push the euro lower and perhaps stave off a sharper decline in growth.
But fears about European contagion again weighed heavily on the major American banks, whose shares have fallen more than 35 percent this year.
“It’s just painful. Every day seems like it is the worst,” said Frederick Cannon, the chief equity strategist at Keefe, Bruyette Woods in New York. “As long as U.S. financials are tied to the comings and goings of Europe, it is going to be a roller-coaster ride without an end to it.”
Wall Street firms were pounded as investors worried that they may have large, indirect exposures to the Continent’s fiscal troubles because of the business they do with major European companies and banks. On Monday, Morgan Stanley’s shares fell almost 8 percent after plunging more than 10 percent on Friday. Shares of Goldman Sachs fell almost 5 percent Monday.
In another sign of investor fears, credit-default swaps on bonds backed by both Morgan Stanley and Goldman Sachs surged on Monday to their highest levels since the 2008 financial crisis. According to Markit, a credit derivatives data provider, investors are now paying $558,000 to insure against the risk that $10 million of Morgan Stanley bonds might default. They are paying $348,000 for similar protection for Goldman Sachs debt.
More domestically focused banks were not spared. Amid the onslaught of bad economic news — and fears of another weak jobs report on Friday — investors were dubious about the financial industry’s ability to improve revenue. They are also concerned that Federal Reserve policy measures to keep interest rates near zero for the next two yeas will ravage their results. Even generally well-run institutions — like JPMorgan Chase, Bank of New York Mellon, PNC Financial, U.S. Bancorp and Wells Fargo — fell 3 to 5 percent.
Airline stocks were also battered on Monday amid concerns consumers and businesses will cut back on travel spending in a deeper downturn. Traders started circling AMR, the parent company of American Airlines, because of rumors that it may be headed for bankruptcy.
An analyst report noted that an unusually large number of pilots have retired in recent months, contributing to AMR’s price drop of more than 33 percent, to $1.98. Shares of Delta Air Lines and United Continental Holdings fell about 11 percent. The U.S. Airways Group stocks sank almost 16 percent.
David Jolly, Stephen Castle and Bettina Wassener contributed reporting.
This article has been revised to reflect the following correction:
Correction: October 3, 2011
Because of an editing error, an earlier version of this article misstated the price of oil. It is trading slightly above $77, not $777.
Article source: http://feeds.nytimes.com/click.phdo?i=553fda21528c7ff61d8cc188e6aa70b4
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