Traders on the NYSE floor react to S&P downgrade

August is usually a slow month for the market. On the floor of the New York Stock Exchange, it's vacation season. Things slow down. Traders take a breath.

Not this summer.

On Monday morning, traders, still looking bleary-eyed and shocked from last week's sharp declines, said they hadn't slept well Sunday night. The line at the Starbucks on the Exchange's floor was especially long. They knew they were in for a grueling day — the first time stocks would trade in the U.S. since Standard & Poor's downgraded the government's long-term debt Friday night.

Seconds before the market opened at 9:30, traders engaged in some clapping. But then the market opened and the Dow Jones industrial average dropped 250 points. The boards hanging above the Exchange floor that are akin to a scoreboard in a sports arena went red.

As the day ground on, it would only get worse.

By the end of the trading, the Dow Jones industrial average fell 634.76. In 112 years, only five other days had worse point drops.

Art Cashin, floor director at UBS Securities, who has worked on the floor of the Exchange for 50 of those years, likened Monday to watching a patient recovering from chest pain as he putters down the street. "You wait as they catch their breath, and see if they can walk on," he said. "But the symptoms are really concerning."

Outside the Exchange's historic stone façade, a mob of tourists snapped pictures as if its Gothic doors were about to give way to a Justin Bieber sighting. Inside, the press gallery was packed with international journalists. They'd been flown in over the weekend by news outlets all over the world to cover the U.S. meltdown, or what some were dubbing "Stockpocalypse."

On the floor, traders talked about the past -- the crash in 1987 and the dizzying dips that came after September 11, 2001 and the 2008 meltdown. The recent declines don't compare with those, they said. But they still couldn't help but betray their nerves.

"It's a perfect storm," said Allan Valdes, director of floor trading at DME Securities. "American's love a silver bullet. But it's going to be a long time before we get out of this. This could go on for 10 years."

Last week's crash, in which the market experienced its worst slide since the financial crisis of 2008, was followed by more bad news after Friday's close. For the first time in history, credit rating agency Standard and Poor's "put a downgrade on America," as many traders described it. The agency removed the country's perfect AAA credit rating, and replaced it with one that is a notch lower, AA+. The country had held the AAA rating since 1917.

For many traders, it felt symbolic of a new world order.

Global markets are more interlinked then they ever have been before. As a whole, companies in the Standard & Poor's 500 index now reap half their profits overseas. Europe's debt crisis, which has hammered Ireland and Greece, now threatens to spread, domino-like, to Spain and Italy. Still-developing countries like Brazil and China are no longer the engine of growth they have been since the financial crisis.

Add to that slowing economic growth in the U.S. and an unemployment rate of more than 9 percent. Then, the downgrade, which reflects the gridlock of reducing a debt that exceeds $14.2 trillion and has nations like China scolding Americans to shed their credit-addicted ways.

What makes the situation even worse, traders said, is at the very time the markets need the U.S. to be seen as a decisive, bold leader, lawmakers instead have acted dysfunctional stumblebums, traders said.

President Obama defended the country's credit-worthiness in a televised speech to the nation mid-day Monday. It was broadcast at the Exchange. Afterwards, the Dow plunged again and was down 600 points or more, further reflecting the investing world's lack of confidence in what one trader called the "gridlocked circus" of Washington, D.C.

"It has a huge psychological impact," said Doreen Mogavero, founder of trading firm Mogavero, Lee & Co. "It erodes confidence."

Some traders fear the sell-off might not be over.

"We have not seen that bottom yet," said Jonathan Corpina, a trader with Meridian Equity Partners. "When you get hit like this, everyone's going to get hit by it."