Stocks plummeted in a flashback to the panicked trading of 2008. Investors fled everything from stocks and risky bonds and poured money into safe assets such as U.S. Treasuries.
Stocks began the day in negative territory but took a sharp dive south in the afternoon as selling built up and some indexes fell through key technical levels, sparking new waves of selling, investors said.
As losses piled up, the Dow Jones Industrial Average plunged more than 900 points. Key short-term credit markets—such as the rate for three-month Libor—began to show signs of stress and corporate bonds tumbled. The Dow was recently down about 485 points to 10380.
A 20% drop in the Dow would have been needed to halt trading. After 2:30 p.m. EDT, the 20% standard goes into effect. Before then, a 10% drop would have triggered at least a 30-minute halt. For the second quarter, 10% equals a 1,050-point drop in the Dow industrials while 20% equates to 2,150 points.
The exchange first implemented the circuit breakers in the wake of the market’s crash in October 1997. In 1998, the New York Stock Exchange set the triggers at 10%, 20% and 30% declines in the Dow for three levels of halts.
The S&P 500 and the Nasdaq Composite, which also saw steep intraday drops, were down more than 4% each in recent activity.
Credit markets, too, are beginning to show signs of stress. Three-month Libor, the benchmark rate for billions of dollars in debt, shot to 0.42 percentage point from 0.37 percentage point, traders said. Corporate bond indexes also tumbled.
“It’s getting pretty ugly out there very fast,” Guy Lebas, chief fixed income strategist at Janney Montgomery Scott. “There are definitely some major concerns that are escalating this afternoon.”
Investors remained deeply worried Thursday about the unfolding drama of Europe’s efforts to prop up Greece’s finances. Despite boisterous street protests, Greece’s parliament passed a bill with austerity measures that will give the country access to an assistance package jointly offered by the European Union and International Monetary Fund. Other EU members will take votes in their respective parliaments soon to approve spending on the package, with a first test expected in Germany on Friday.
“A lot of traders are getting carried out of their seats. There are lots of liquidations including hedge funds out of riskier assets,” Michael Franzese, head of Treasury trading at Wunderlich Securities in New York. “No one was expecting this sell off in stocks and the euro and a flight to quality trade is in full effect and it’s not yields levels it’s just capital preservation.”
While the bailout is expected to pass in Germany and elsewhere, it remains unpopular among voters who don’t want to see their respective countries’ resources used to solve Greece’s problems. Traders said that any hints of populist backlash could slow the package’s implementation or lead to omission of elements needed to prevent global economic contagion.
“Some of the panic-mode has come in now,” said Jay Suskind, senior vice president at Duncan-Williams. “What you’re seeing in Greece—even the pictures on the television with the protests starts to spark some real fear.”
With about an hour of trading to go, New York Stock Exchange composite volume has already topped 8 billion, making this the second-busiest day of the year in the market. The 2010 high was 8.4 billion shares, set on April 16 when the government filed fraud charges against Goldman Sachs.
Traders described Thursday’s trading as driven largely by automated sell orders, which piled up after several technical barriers were breached, in particular the 1150 level on the S&P.
“A lot of people thought we had support around that level, so there was some disappointment that it didn’t hold,” said Phil Roth, chief technical analyst at Miller Tabak.
But he added: “The numbers themselves are a little less important than the manner in which the market gets there. The important thing is that we’ve had a very non-traditional bull market, without any major correction or several years of advances alternating with sideways periods. This could be the thing that sets off a real correction, but we’ll have to wait and see.”
—Donna Kardos Yesalavich and Kristina Peterson contributed to this article.
Write to Peter A. McKay at peter.mckay@wsj.com
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