Stocks plummeted Thursday as a worries over Europe’s banking sector again gripped investors and reignited the broad sell-off that roiled global markets last week.
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The Standard & Poor’s 500 Index closed down about 53 points, or 4.5 percent. The Dow Jones industrial average dropped about 420 points, or 3.7 percent, after plunging more than 500 points on opening. The tech-heavy Nasdaq composite slid more than 131 points, or 5.2 percent. Every sector of the Dow and the S&P ended the day lower.
All three indexes have now wiped out their gains for the week.
The whopping decline followed sharp sell-offs in Europe, where Germany’s blue-chip DAX index tumbled 5.8 percent, Britain’s FTSE 100 fell 4.5 percent and France’s CAC 40 was down 5.5 percent.
The sell-off began with major European bank stocks, as worries about the banks’ financial health while Europe struggles to contain its debt crisis made investors cautious.
French banking giant Societe Generale shed more than 12 percent; its peers Credit Agricole and BNP Paribas were each down about 7 percent. In Germany, investors sheared 10 percent off of CommerzBank and nearly 7 percent off of Deutsche Bank. Italy’s UniCredit was down 7 percent.
In the United States, shares of Bank of America tumbled more than 6 percent. Other major banks, including Morgan Stanley, Citigroup and J.P. Morgan Chase, were also down more than 3 percent.
“It’s a harsher day than I would have expected,” said Matthew Czepliewicz, a banking analyst at Collins Stewart Hawkpoint in London. He said markets were most likely reacting to the lack of progress on Europe’s financial crisis rather than speculation about individual banks.
“Bank performance historically correlated best with expectations of economic performance,” and Europe’s economic prospects only continue to dwindle, Czepliewicz said. Earlier this week, the European Union’s statistical office reported only a 0.2 percent rise in gross domestic product, the broadest measure of economic growth, across its 27 member countries in the second quarter. Of the special concern was news that Germany’s GDP had slowed to a 0.1 percent growth during the quarter.
“Germany has been the driver of growth over here,” Czepliewicz said.
On Thursday, several economic reports also pointed to an ongoing slowdown in the U.S. economy. Manufacturing activity in the mid-Atlantic region dipped significantly in August, according to a survey by the Federal Reserve Bank of Philadelphia.
Data from the National Association of Realtors, a trade group, painted a disappointing picture of the housing market, with sales of existing homes falling 3.5 percent in July to 4.67 million, the lowest rate in eight months. Economists had been expecting sales closer to 5 million.
“Just as mortgage rates are dropping, people are not applying to buy homes and that’s telling me that people are spooked,” said Patrick Newport, an economist with IHS Global Insight in Lexington, Mass.
Newport said that the housing market could take another dip, though “the more likely scenario is that housing may just remain flat for another two years” without contributing to an economic recovery.
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