It is nasty out there. From Bloomberg:
The benchmark index for U.S. stock options reached 80 for the first time in its 18-year history, driven higher by equities extending the biggest slide since 1987 on concern the economy will continue deteriorating.
The VIX, as the Chicago Board Options Exchange Volatility Index is known, increased 15 percent to 79.94 at 11:10 a.m. in New York after earlier rising to 80.26. The index measures the cost of using options as insurance against declines in the Standard & Poor’s 500 Index, which lost 4 percent. The S&P 500 tumbled 9 percent yesterday. Today’s VIX record eclipsed the peak of 76.94 on Oct. 10, when U.S. stocks completed their worst week since the 1930s.
“It’s absolutely uncharted territory,” Matt Shapiro, a VIX options trader at Stutland Equities LLC, said in an interview from the CBOE floor. “It’s very frightening and there’s a huge explosion to buy any options on the VIX, especially 70 and 90.”
U.S. stocks retreated for a third day, erasing the gains from the biggest rally in seven decades, after Citigroup Inc. said bad loans may rise to a record high and the government said manufacturing fell the most since 1974.
Citigroup declined 8.8 percent after saying loss rates on credit cards and mortgages may climb as the economy deteriorates. American Express Co., the largest U.S. card network by purchases, slid 8.9 percent. General Electric Co., the world’s biggest industrial company, lost 3.6 percent and extended its plunge over the past month to 26 percent.
“The frozen credit markets and the shock coming out of these stresses we’ve had in the capital markets have exacted a toll on the real economy,” U.S. Treasury Secretary Henry Paulson said in an interview with Bloomberg Television. “We’ve seen that in some of the numbers recently. We’re going to have a number of tough months here.”
The Standard & Poor’s 500 Index declined 40.29 points, or 4.4 percent, to 867.55 at 11:12 a.m. in New York, below its lowest close since April 2003. The Dow Jones Industrial Average slid 356.26, or 4.2 percent, to 8,221.65. The Nasdaq Composite Index slipped 54.93 to 1,573.4. Ten stocks dropped for each that rose on the New York Stock Exchange.
The retreat over the past three days erased all of the 12 percent gain in the S&P 500 on Oct. 13, when the
market rallied the most since the 1930s on speculation the government’s plan to shore up banks will ease the credit crisis.
Update 3:40 PM: As market watchers know, the selloff reversed itself just before 3:00 and stocks rallied, with the Dow now up over 200 points. The logic is that lower oil prices are a boon; consumer stocks in particular are up nicely. But as we saw during the commodities boom period, in some days, rising oil prices were argues to have led to a rise in the entire market, and on others, to have precipitated a selloff. Go figure.
U.S. stocks rose for the first time in three days after oil retreated below $70 a barrel, brightening the outlook for consumer companies and overshadowing the biggest slump in industrial production since 1974.
Wal-Mart Stores Inc. and McDonald’s Corp. added more than 5 percent on expectations lower fuel prices will bolster consumer spending. The Dow Jones Industrial Average reversed a decline of as much as 380 points as 23 of its 30 companies advanced.
“You get down to a point where energy starts to be more of a positive than a negative,” said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland, which manages $30 billion. “This is some evidence that the market is not inclined to push to new lows.”
The S&P 500 advanced 26.49 points, or 2.9 percent, to 934.33 at 3:31 p.m. in New York. The Dow Jones Industrial Average rallied 268.97 points, or 3 percent, to 8,846.88. The Nasdaq Composite jumped 3.2 percent to 1,679.86. About five stocks gained for every two that fell on the New York Stock Exchange.