Stocks, gold tumble as investors rush to bonds
The Federal Reserve said to buy bonds — and investors worldwide complied at the expense of nearly every other investment.
Investors dove for safety Thursday after the Fed said it would shift $400 billion of its short-term U.S. Treasury holdings into longer-term government debt. The Fed’s hope is to spur the economy by lowering interest rates on everything from home mortgages to car loans, thereby increasing consumer spending.
But doubts over the plan, and new jitters about the economy, helped send stock and commodity markets into a tailspin worldwide as money streamed into government-backed debt.
The yield on 10-year Treasury notes, a benchmark for mortgage rates, dropped to a 60-year low of 1.72% from 1.86% on Wednesday. The yield on 30-year T-bonds plummeted to 2.80% from 3.00% on Wednesday.
“The Fed came up short,” said Marin Aleksov, chief executive of precious metals broker Rosland Capital in Santa Monica. Markets are “driven by emotions and uncertainty at this point.”
Investors also were rattled by the Fed’s bluntly worded assessment warning of “significant downside risks to the economic outlook.” The fear is that policymakers may have run out of measures to stop the global economy from tipping into another recession.
For stocks, the sell-off began in Asia and carried over to Europe, where major stock indexes slumped nearly 5%
The Dow Jones industrial average closed down 391.01 points, or 3.5%, to 10,733.83, its sharpest one-day fall in five weeks. The blue-chip index was down as much as 527 points before recovering in the final half hour of trading.
All 10 industry sectors in the broader Standard & Poor’s 500 index tumbled. The S&P index dropped 37.20 points, or 3.19%, to 1,129.56; while the technology-heavy Nasdaq composite gave up 82.52, or 3.25%, to 2,455.67.
Still, the Dow, the S&P and the Nasdaq all closed above their summer lows — a positive sign on an otherwise bleak day.
Investors dumped not only stocks but also investments once thought safe during turbulent times. Silver fell more than 11%, to less than $37 an ounce. Gold sank $66.30, or 3.7%, to $1,739.20 an ounce, after edging toward $2,000 last month.
Some investors may have sold gold to cover their losses in other hard-hit assets, such as stocks. Many analysts expect the metal, which has risen for 11 straight years, to rebound.
“Normally, declines in equity markets would be good for gold. But there’s a twist to it today because the declines globally are so severe,” said James Steel, chief commodities analyst for HSBC. “This doesn’t mean the gold rally’s over. In a perverse sort of way, gold is showing why you buy it — in case of an emergency to raise cash.”
Other commodities plunged as investors sold anything they perceived to be risky. The Thomson Reuters/Jefferies CRB index of 19 major commodities slumped 4.4% in its biggest drop since May 5. The index is now trading at levels not seen since December.
The dollar benefited from the global “flight to quality.” An index of the buck’s value against six other major currencies jumped 1.3% to its highest level since February. But a rising dollar hurts U.S. exporters — another negative for stock prices.
The sharp market reaction overshadowed a few upbeat reports about the economy released earlier in the day. An index of leading economic indicators — a gauge intended to foreshadow economic developments in coming months — rose more than expected last month. The government also announced that the number of new people filing unemployment claims fell slightly this week.
Times staff writers Tiffany Hsu, Tom Petruno and Walter Hamilton in Los Angeles contributed to this report.
