Investors on Wall Street have delivered their response to the shock downgrade of US debt by ratings agency Standard & Poor’s – and it was not pretty.
The benchmark S&P 500 index plunged 6.7% overnight in a dramatic trading session that resulted in the biggest single-day fall since October 2008, when the market was gripped by the GFC and credit crisis.
The day of panicked selling also saw the Dow Jones Industrial Average fall more than 5.5%, while the tech-dominated Nasdaq industry also turned in a miserable performance, falling a massive 6.9%.
Last night was the first time US investors had had a chance to trade on the news that the US sovereign debt had lost its coveted AAA status.
Markets across Europe also showed their displeasure with the US debt downgrade, although trading in that region was helped by the European Central Bank’s decision to buy bonds issued by the Spanish and Italian governments, both of which are in the midst of debt crises.
London’s FTSE fell 2.6% in overnight trade, while Japan’s Nikkei Index was down 2.2%.
The carnage on Wall Street last night points to a potentially ugly day on the Australian market, which dipped sharply on opening yesterday, rallied and then finished the day down 2.9%, with about $30 billion wiped off the value of the market.
Futures trading suggests the Australian market could drop by as much as 4%, although larger falls may be possible if panic selling does set in.
Among the hardest hit shares last night in the US were banking stocks, with the S&P financials index falling 10%. Shares in Bank of America dropped a massive 20% on fears that the US could be plunged into a double-dip recession.
Last night’s horror trading session even forced President Barack Obama to attempt to calm the nerves of the market.
He tried to reassure reporters that the US economy is resilient and the S&P downgrade was less a reflection on the US economy and more a reflection on the poisonous political situation in Washington, where Tea Party Republicans are refusing to examine tax increases to help pay down the nation’s rapidly growing debt burden.
SmartCompany will continue to cover the market turmoil as it unfolds today.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
