Investors Run From Stocks

U.S. investors went back to work Tuesday to find themselves scrambling again to escape more fallout from Europe's spiraling debt crisis.

Stocks dropped as investors continued to flee risky assets. The S&P 500 notched its worst-ever three-day start to September. Steven Russolillo has details on The News Hub.

The Dow Jones Industrial Average fell 100.96 points, or 0.9%, to 11139.30, while gold jumped to a record high in intraday trading and Treasury bond yields traded below 2% for much of the day and finished at a record closing low.

Bank stocks in Europe and the U.S. took the brunt of the damage, in a reflection of renewed fears about the fundamental health of the global financial system and policy makers' inability to address deep-rooted economic issues.

"Clearly, the risk is another 2008-like scenario," said Dan Greenhaus, chief global strategist at BTIG, pointing to the lack of obvious safe havens amid widespread selling.

The day's heaviest losses came shortly after the opening bell in New York, with the Dow falling more than 300 points, following Monday's heavy declines in Europe and Asia during the U.S.'s Labor Day holiday.

Stocks got a temporary reprieve following a brighter-than-expected reading of U.S. nonmanufacturing activity, and they managed to claw back some of the losses by the day's end.

Even so, after Tuesday's selloff, the Standard & Poor's 500-stock index is off 4.4% over the past three sessions, making it the worst start to September in the index's history.

Investors have been on the defensive as the debt situation in Europe has flared up again as a major source of concern. After a bruising debt downgrade in the U.S., investors have fixed on developments in Europe, which faces a slew of deadlines and pivotal votes in coming weeks.

Investors, increasingly discouraged by a toxic blend of political gridlock, austerity efforts and vulnerable banks, appear to be in no mood to take chances.

"Investors realize that policy makers in Europe and the U.S. don't fully comprehend the whole situation," said Matthew Lloyd, chief investment strategist at Advisors Asset Management. "A prime example is the U.S. jobs picture, which should have become a top priority two years ago, and now it may be too late to do anything."

In Europe, a second Greek bailout agreed to in July needs parliamentary approval from Europe's various national legislatures, but some countries have demanded collateral as a precondition for approval.

Investors are concerned Italy is shying away from austerity measures. In Germany, Chancellor Angela Merkel's political position appears to be eroding, which could hamstring the country's ability to take a more active role.

"From an investor's standpoint, do you want to be exposed to a modest upside with a very significant downside?" Mr. Greenhaus said. "You can see why investors would want to move to riskless assets in response to what could be another 20% fall."

Bank stocks suffered from Tuesday's heaviest selling, with Bank of America dropping 26 cents, or 3.6%, to $6.99, and J.P. Morgan Chase falling $1.19, or 3.4%, to $33.44, while American depository shares of France's Société Générale and the Netherlands' ING Groep each fell by 10% or more.

"This is definitely a situation that appears to be reaching a climactic moment," said Constance Hunter, chief economist of investment fund Aladdin Capital Management LLC in Stamford, Conn. "I think we're going to see a bolt from equities and a flight to quality in the debt markets."

With the faltering of some investors' faith in major currencies and the banking systems of the major Western economies, those seeking shelter have poured their assets into gold, U.S. Treasurys and perceived safe-haven currencies.

Gold prices rose to a record intraday high of $1,911.60 a troy ounce before finishing the day down $3.80 a troy ounce, or 0.2%, at $1,869.90. The yield on 10-year Treasury bills fell to 1.979%, a new record closing low. Its price rose 6/32 to 101 10/32, as prices move inversely to yields.

The safe-haven strategy was jostled Tuesday when investors found one of their favorite havens under assault from the Swiss National Bank, which took its most dramatic step yet to curtail the Swiss franc's rise. After the central bank set a minimum exchange rate of 1.20 Swiss francs per euro, the safe-haven currency plunged by more than 9% against the euro and the dollar.

The market's price-to-earnings ratio is a lot more attractive now than it was three months ago, MarketWatch's Mark Hulbert says. Laura Mandaro reports.

The dollar ended at 0.8620 Swiss franc, from 0.7871.

Already, investors have struggled to find safety from the storm, after attempts by Japanese and Swiss central bankers to discourage investors from plowing assets into their currencies.

Similarly, the Bank of New York Mellon has told large institutional clients it will charge them to hold large cash deposits. Fear had pushed corporations and investors to flood the bank with deposits. BNY-Mellon specializes in handling funds for financial institutions and corporations.

"You can see it with the Japanese, the Swiss, even Bank of New York. Nobody wants to be the safe haven right now," Mr. Greenhaus said. "They're all hoping that people will go back into risky assets, but for now the safe-haven trade is very much alive and well."