The rocky road continues for the market and exchange traded funds (ETFs) as most major indexes dropped sharply today. The Dow Jones industrial average fell more than 380 points. It was the biggest drop and percentage loss for both the Dow and the S&P 500 since a market pullback on Feb. 27, according to Tim Paradis for the Associated Press. The Dow is 5.2% below its record close, and the S&P 500 is riding its trend line, threatening to drop below it (it is currently 0.1% above the 200-day moving average). Factors that contributed to the giant plunge include:

  • The French bank BNP Paribas froze three security funds that invest in U.S. subprime mortgages because it was unable to properly value their assets. We talked about this earlier today as this move also negatively affected financial ETFs.
  • The European Central Bank loaned more than $130 billion in overnight funds to banks at a low rate of 4%, which is its biggest injection ever. Although it was meant to calm investors, analysts saw the move as a confirmation of the credit market’s problems.
  • The Federal Reserve added a larger-than-normal $24 billion in temporary reserves to the U.S. banking systems.
  • Retailers released July sales figures today that were generally disappointing.


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