U.S. stocks at lowest level since 1997

Things were actually looking fairly good during midday given how horrible the credit markets (high yield, asset-backed and corporate) have become.  Sure, the bank stocks sold off, but the stock market in the U.S. was holding its own after selloffs abroad.  But then, all of a sudden, the bottom dropped out with the S&P 500 breaking well through 2002 lows to end at 752, its lowest level since 1997.

U.S. stocks slid and the Standard & Poor’s 500 Index plunged to its lowest level in 11 years after economic reports depicted a deepening recession and lawmakers postponed a vote on a plan to salvage the auto industry.

The Standard & Poor’s 500 Index extended its 2008 tumble to 49 percent, poised for the worst annual decline in its 80-year history. Chesapeake Energy Corp. and National-Oilwell Varco Inc. slid more than 21 percent as crude sank to a three-year low as the economic slump crushes demand. JPMorgan Chase & Co. tumbled 18 percent and Citigroup Inc. plunged 26 percent as concern the recession will trigger more bankruptcies pushed the cost of insurance against corporate defaults to an all-time high.

“It’s an ugly mess out there,” said Randy Bateman, who oversees $15 billion as chief investment officer of the asset management unit of Huntington Bancshares Inc. in Columbus, Ohio. “The economy is confirming it is very, very weak.”

The S&P 500 slid 6.7 percent to 752.58, under the low of 776.76 reached during the bear market in 2002. The Dow Jones Industrial Average sank 443.8 points, or 5.6 percent, to 7,553.48. The Nasdaq Composite decreased 5 percent to 1,317.05. Twelve stocks retreated for each that rose on the New York Stock Exchange.

The S&P 500 extended its tumble from an October 2007 record to almost 52 percent as all 10 of its main industry groups slid at least 3 percent. Concern the recession is deepening was spurred after jobless claims approached the highest level since 1982, the index of leading economic indicators fell for a third time in four months and the Federal Reserve said manufacturing in the Philadelphia area shrank in November at the fastest pace in 18 years.

Meanwhile, Treasury Yields dropped to their lowest on record. Call it a flight to dodgy quality. But, irrespective of what you think about U.S. Government paper, they rallied significantly today.

U.S. Government Bond Yields

Yields move in the opposite direction of price, so the 0.44% drop in the 30-year bond meant a gigantic one-day increase in price of $8.25.  This 8% rise in one day is one of the largest moves I have ever seen.  In fact, as I write this I am hearing on Bloomberg News that the move was the largest ever.

Now, the bond guy in me thinks “someone just got wiped out” when I see moves of this magnitude.  In my view, these moves presage something very ugly lurking beneath the surface.

U.S. Stocks Retreat, Sending S&P to Lowest Level Since 1997– Bloomberg
Treasury Yields Drop to Record Lows as Recession Concern Rises – Bloomberg
U.S. Treasuries – Bloomberg Market Data

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