US stocks plunged last night after heavy equipment maker Caterpillar warned that the housing slump was spilling over into the broader US economy, driving up US government bond prices as investors sought a safe haven.
The dollar fell to a record low, helping drive oil briefly to a record high above $90 per barrel.
On a day that happened to be the 20th anniversary of the 1987 'Black Monday' stock market crash, each of the major US stock indexes fell more than 2.5 per cent. The Dow and the S&P marked their biggest percentage drops since August 9th.
Caterpillar, the world's top maker of earth-moving and construction equipment, posted disappointing quarterly earnings and cut its full-year profit forecast. The company's chief financial officer said he sees a 50 per cent chance that the United States will fall into a recession next year.
Stocks fell not only in the United States, but also in Europe and Asia. Twenty years ago, stocks around the world fell on "Black Monday," with the Dow Jones industrial average dropping nearly 23 per cent.
The Dow Jones industrial average fell 366.94 points, or 2.64 per cent, to 13,522.02. The Standard & Poor's 500 Index declined 39.45 points, or 2.56 percent, to 1,500.63. The Nasdaq Composite Index tumbled 74.15 points, or 2.65 per cent, at 2,725.16.
On the New York Mercantile Exchange, November crude fell 87 cents, or nearly 1 per cent, to settle at $88.60 a barrel, after trading overnight at a record $90.07. The decline was attributed to traders taking profits by closing out positions before the November contract expires on Monday.
Bonds were buoyed by safe-haven buying. The 10-year Treasury note was up 28/32 in price in late afternoon trade with the yield at 4.39 percent, down from 4.50 per cent late on Thursday. Bond prices move inversely to yields.
US interest-rate futures show a 96 per cent perceived chance of the Federal Reserve cutting its benchmark federal funds target rate by a quarter percentage point at its next meeting on October 30 th-121, up from around 30 per cent to 40 per cent implied chances earlier this week.