Q&A: The Wall Street plunge

Wall Street re-opened for business on Monday, and the key Dow Jones index promptly suffered its worst points loss in history, falling by more than 7%. BBC News Online assesses New York's return to work, and asks whether the plunge is cause for concern.

Was this a record loss for Wall Street?

In some ways, yes.

In terms of the number of points lost by the Dow Jones Industrial Average, the main blue-chip index in New York, it was an all-time record.

But in percentage terms, it was far from a record.

The Dow suffered sharper one-day percentage falls in 1987, 1937, 1933, 1932, and several times during the Wall Street Crash of 1929.

On October 19, 1987, the Dow plunged by a massive 22.6%.

Besides, the Dow is only the narrowest of indicators of the broader US stock market.

It contains only 30 stocks, all big industrial "old economy" companies, and is therefore ever-less representative of the US market, which has become increasingly tech-heavy in the last few years.

The Nasdaq, which trades mainly "new economy" shares, fell slightly less sharply than the Dow - although it has performed far worse over the last few months.

Is such a heavy loss cause for concern?

Yes and no.

No, because Wall Street was only attempting to catch up with heavy losses on international markets during the days that it has been closed.

Most other markets had lost something like 10% of their value in the second half of last week, so it was feared that New York could follow suit.

The fact that it did not helped cheer Europe, where most stock markets registered their first significant gains since Tuesday.

And of genuine cause for cheer was the fact that trading operated without interruption throughout the day, despite fears of technical disruption.

But on the other hand, there is cause for worry in the way the mood soured in the US afternoon.

It had appeared, by around lunchtime in New York, that the losses were going to be modest indeed - after heavy early falls, the Dow was only down about 4% at noon.

But things turned nasty later on - possibly as early good intentions of "patriotic" investing were lost amid the scramble to unload shares.

The sharp drops of the late afternoon imply that the US government cannot count on any favourable treatment from investors in the difficult months ahead.

However much politicians might urge investors, financial markets are a deeply unsentimental place.

Was the crash shared equally around the market?

Far from it.

Airlines, hotels, and leisure-related stocks suffered the most intense selling.

Some airline shares halved in value, amid fears of prolonged flight disruption and timid travellers in an industry that was already financially feeble.

Almost all industries related to consumer demand - primarily entertainment, media and some technology companies - were also hit, as investors feared the effects on US consumer confidence.

Only a tiny handful of shares registered gains.

Predictably, the only firms to benefit were those involved in the defence business, as well as personal and corporate security.

The best performer was Sturm Ruger, a distributor of handguns, which soared almost 11% on the New York Stock Exchange.

So what happens now?

After some modest ebullience on Monday, European and Asian investors will be disappointed by the weak performance in the New York afternoon.

Although the worst predictions - of 10% losses - were not proven true, it seems likely that there will be further sell-offs in global markets over the next few days.

With share trading now in operation pretty much 24 hours a day around the world, grim sentiment has a habit of becoming infectious, as falls in one market are picked up, and often magnified, by the next.

The gloomiest forecasters say there could now be a round of global "contagion".

But unlike most periods of contagion, which usually affect skittish emerging markets, this one would be at the heart of the rich world's financial system - with predictable effects for the economy.

The next few days' trading will be crucial.