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The specter of another recession haunted investors and dealt a body blow to the markets which crashed to their worst day since the economic crisis of 2008. On Wednesday, just when the Dow looked like ending its longest losing streak of nine days since Jimmy Carter held office, the index plunged over 500 points to record its ninth-steepest decline.


The broad sell-off in the market and resulting panic led to the Dow, Standard & Poor 500 (S&P) 500 and the Nasdaq plunging 4.3%, 4.8% and 5.1%, respectively. Each benchmark posted its share of records, though none of these brought any cheer to investors. The Dow settled at 11,383.83, losing 512 points, the steepest such decline since Dec. 1, 2008. However, the 512-point decline was far from the 778-points slide that the blue-chip had posted on Sept. 29, 2008. In one of its worst sessions since February 2009, the S&P 500 settled at 1,200.24. The Nasdaq suffered its worst session since January 2009 and closed at 2,556.39. However, investors chose to term the 10% decline in benchmarks from its spring high as a correction.


Fears ran amok, as the fear-gauge CBOE Volatility Index (VIX) sky-rocketed 35.8% to settle at 31.8. The CBOE has now escalated above the key-level of 30, which reflects a high degree of fear. The VIX also posted its highest reading since July 2010 and had the largest increase since February 2007.


Markets witnessed their busiest day in almost a year because of the broad sell-off, with consolidated volumes on the New York Stock Exchange, NYSE Amex and Nasdaq at 13.92 billion shares versus the daily average of roughly 7.48 billion. This was also the highest volumes traded since June 25, 2010. On the NYSE alone, composite volumes soared to hit the highest point since May at 7.5 billion shares, compared with this year’s average volume of 4.12 billion. Decliners zoomed past advancers in a ratio of 19 to 1.


The Dow is now down 10.5% and has lost 1, 300 points since July 21. The index has declined in nine of the ten sessions since then, with the only gain coming yesterday when it was up by a mere 0.3%. None of the 30 Dow components could manage a place in the green, with Alcoa, Inc. (NYSE:AA), Bank of America Corporation (NYSE:BAC), Caterpillar Inc. (NYSE:CAT), EI DuPont de Nemours & Co. (NYSE:DD), Walt Disney Co. (NYSE:DIS), International Business Machines Corp. (NYSE:IBM) leading the declines after they plunged 9.3%, 7.4%, 7.0%, 6.5%, 5.6% and 7.4%, respectively. The humongous losses also washed out the gains for the year and dragged the Dow down to the negative zone for the same period. The other benchmarks, the S&P 500 and the Nasdaq have also ended up in negative territory for the year.


For the S&P 500, only three stocks were in the green. All the 10 industry groups were in the red, with energy, materials and industrials suffering the most. The energy sector suffered after US light sweet crude oil crashed down to $86.25 per barrel. Among the decliners, Chevron Corp. (NYSE:CVX), ConocoPhillips (NYSE:COP), Exxon Mobil Corporation (NYSE:XOM), BP plc (NYSE:BP), Transocean Ltd. (NYSE:RIG) and Halliburton Company (NYSE:HAL) lost 5.8%, 5.2%, 5.0%, 6.2%, 8.6%, 9.5%, respectively.


After battling concerns over the debt ceiling for the past two weeks, markets did draw optimism from the resolution of this issue. But just after the debt deal was made public earlier this week, investors shifted their focus to sluggish economic growth. Fears of a slowing recovery were further sparked by a row of disappointing economic reports released throughout the week. The manufacturing index, factory orders, consumer spending or the non-manufacturing index failed to provide any relief to jittery investors. Yesterday, the jobs report also provided scant momentum after the U.S. Department of Labor reported a mere 1,000 decline in the initial claims. The report stated: “In the week ending July 30, the advance figure for seasonally adjusted initial claims was 400,000, a decrease of 1,000 from the previous week's revised figure of 401,000. The 4-week moving average was 407,750, a decrease of 6,750 from the previous week's revised average of 414,500”.


Markets were further pressurized after news came in that Italy and Spain would also require support from the European Union. It had been feared that the debt crisis that started with Ireland, and traveled through Portugal and Greece would spread throughout the continent. The crisis looks likely to trample the bigger economies like Italy and Spain now, and with the EU already providing aid to Greece, it might be hard pressed to provide necessary help to these larger economies. The European Commission acknowledged the crisis and stepped in to buy bonds in a bid to steady the ship. ECB President Jean-Claude Trichet said: "It's true that we are in a period of a high level of uncertainty, not only in the euro area but at the global level". He also opined that "downside risks may have intensified”.


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