| | |  Business News | October 2008 
US Stocks Slide in Turbulent Trading
 Graham Bowley & David Jolly - The New York Times
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| | The Dow Jones Industrial Average dipped below 8000 momentarily on Friday morning after markets fell sharply overnight in Europe and Asia. (Reuters) | | |
Amid unrelenting pessimism about the health of the global economy and world governments' ability to solve the financial crisis, stocks swung wildly on Friday, with the Dow Jones industrial average down 370 points, or 4.3 percent, by early afternoon in New York, continuing this week's aggressive sell-off.
And at the opening of trading, Wall Street had seemed in a free-fall. The Dow Jones industrial average fell almost 700 points or about 8 percent in the first 10 minutes, dipping briefly below 8,000. The broader Standard & Poor's 500-stock index, declined almost 8 percent.
Then the turnaround began, and shortly after 10 a.m., the Dow actually slipped into positive territory, briefly, before again pushing lower.
Another day, another series of violent swings in a week that has seen large sell-offs in the last hour of the trading day.
By noon, the Dow was down 268 points, or 3 percent. and the S.&P. was off 3.5 percent.
Markets dropped in Europe and Asia as well, adding new urgency to efforts to find a solution to the global financial problems and restore confidence in the markets.
"People are scared," Howard Silverblatt, senior index analyst at Standard & Poor's, said. "Nobody believes what is coming out of the mouths of politicians, chief executives."
President Bush sought to reassure the American people, and by extension the markets. "My fellow citizens, we can solve this crisis, and we will," Mr. Bush said Friday in a statement at the White House as central bankers and finance ministers from the world's richest countries gathered for talks in Washington.
They were meeting to discuss new measures, including the injection of government money into banks in return for ownership stakes. Mr. Bush was to meet with finance ministers from Britain, Italy, Germany, France, Canada and Japan on Saturday.
In his statement, Mr. Bush said the federal government has "immense resources and a wide range of tools" to combat the crisis, and will use them aggressively.
He reiterated his belief in the recently enacted $700 billion financial rescue program and said that government officials were working with their counterparts in other nations to ease a crisis that is truly global.
"We're in this together, and we'll come through this together," Mr. Bush said, addressing the people of the world as well as those of the United States. Speaking to Americans, the president said they "can be confident in our economic future" because they, like the nation's economy, are "innovative, industrious and resilient."
Although the president said nothing new in terms of policies or proposals, his remarks in the White House Rose Garden were nevertheless remarkable, reflecting how rapidly financial events have moved on and the extent to which worries in the United States reverberate around the world, and vice-versa.
"It is a must for the G-7 countries, especially the U.S., to make a firm commitment to public fund injections for recapitalization of banks in trouble, in order to see the stock market pull out of the doldrums," Hideyuki Suzuki, an analyst at Morningstar Japan told Reuters. "If the G-7 nations failed to do so, its raison d'etre will be called into question for sure."
So far, efforts by the various governments to help restore confidence in the financial system have failed to open the credit markets, the short-term financing that businesses depend on to fund their daily operations.
"We are fighting really dire fundamentals," said Gerhard Schwarz, an equity strategist at Unicredit in Munich. "It will require restoring trust and confidence before a sustained rebound will be possible."
Up until Thursday, the S.&P. had fallen for six successive days by more than 1 percent. According to Mr. Silverblatt, the last time that happened was in 1931, and it has never fallen by more than a percent for seven successive days. "The S.&P. has never gone down for seven days in a row by more than a percent," he said.
European markets fell more than 10 percent at the opening, and stayed lower. In London, the FTSE 100 index was down about 9 percent. In Paris, the CAC-40 was about 7.7 percent lower, and the DAX in Frankfurt was down about 7 percent.
Shares in Asia also declined. Japan's Nikkei 225 stock average Ñ already reeling from a nearly 10 percent drop Wednesday Ñ slumped 9.6 percent on Friday, closing at 8,276.43.
Underlining the impact of the crisis, General Electric on Friday reported a 22 percent drop in third-quarter net income, with the global credit crisis hurting its GE Capital arm. In other economic news, the Labor Department said the trade deficit narrowed 3.5 percent in August to $59.1 billion as oil consumption declined.
Shares of the investment bank, Morgan Stanley, were down another 22 percent Friday morning after closing down 25.8 percent at $12.45 on Thursday. The bank has been fighting off speculation that its deal to raise $9 billion from Mitsubishi UFJ of Japan had run into trouble. But executives for both banks have said the deal was set to close Tuesday.
"The fear indexes are dramatically high," Mr. Schwarz noted, pointing to measures of volatility in the markets that were near record highs. "We are seeing intraday volatility this week of 7 percent to 9 percent in Europe."
With the wide trading range that have sent shares from deep in negative territory into positive territory and back this week, "We don't know where we'll be in just a few hours," he said.
In Asia, the Japanese benchmark index has given up more than 25 percent of its value this month.
The Hang Seng index in Hong Kong fell 7.2 percent on Friday, while the ASX/200 index in Sydney closed 8.3 percent lower.
Investors were keeping a close eye on a crisis meeting of Group of 7 finance ministers in Washington later Friday. The United States and Britain appear to be converging on a similar blueprint for stemming the financial chaos, which includes injection of government money into banks in return for ownership stakes and guarantees of repayment for various types of loans.
Credit markets remained frozen. The so-called Ted spread, which measures the gap between yields on safe three-month United States government securities and the rate that banks charge each other for loans of the same duration, was near record levels, at 4.41 percentage points, showing financial institutions remain deeply reticent about lending to their peers.
Mr. Schwarz suggested that the G-7 could help matters by, for example, moving to limit counterparty risk by having central banks insure transactions between financial institutions.
With a wave of United States adjustable-rate mortgages about to reset in the next few months, the authorities are eager to get interest rates down to head off a new wave of defaults in the housing market.
The interest rates on many of those mortgages are tied to Libor, the London interbank offered rate, the rate at which banks borrow from other banks. On Friday, the three-month Libor dollar rate rose to 4.82 percent, according to the British Bankers' Association, despite the coordinated cuts that central banks made in their main interest rates this week. An auction Friday in New York of credit default swaps tied to Lehman Brothers was also weighing on the market. Institutional investors who are forced to pay out on the de facto insurance contracts may have to liquidate equities and other assets to raise funds.
Equities were also hurt by evidence that the financial market contagion has reached the broader economy.
The Organization for Economic Cooperation and Development said Friday that its standardized unemployment measure for all 29 countries was 6.0 percent in August, up 0.2 percentage point from July.
It also said its composite leading indicator for the developed world fell 0.7 point in August from July, suggesting a significant slowdown.
Singapore said Friday its economy had shrunk 6.3 percent during the third quarter, while Ken Wattret, an economist at BNP Paribas in London, said in a research note that it was "almost unavoidable" that the euro zone economy would shrink in 2009.
David Stout and Bettina Wassener contributed reporting. |
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