Published: Thursday October 16, 2008
Despair over the economy sent Wall Street plunging again Wednesday, propelling the Dow Jones industrials down 733 points, or 7.8 per cent, to their second-largest point loss ever. Stocks fell on a combination of disheartening economic data, including a big drop in retail sales and a Federal Reserve report that said tight credit conditions are hurting businesses across the United States.
The government's report that retail sales plunged in September by 1.2 per cent - almost double the 0.7 per cent drop analysts expected - made it clear that consumers are reluctant to spend amid a shaky economy and a punishing stock market.
The Commerce Department report was sobering because consumer spending accounts for more than two-thirds of US economic activity. The reading came as Wall Street was refocusing its attention on the faltering economy following stepped up government efforts to revive the stagnant credit markets.
Investors' angst
The release of the Beige Book, the assessment of business conditions from the Federal Reserve, added to investors' angst. The report found that the economy continued to slow in the early fall as financial and credit problems took a turn for the worse. The central bank's report supported the market's belief that difficulties in obtaining loans have choked growth in wide swaths of the economy.
"Even though the banking sector may be returning to normal, the economy still isn't. The economy continues to face a host of other problems," said Doug Roberts, chief investment strategist at ChannelCapitalResearch.com. "We're in for a tough ride."
Fed Chairman Ben Bernanke offered a similar opinion, warning in a speech Wednesday that patching up the credit markets won't provide an instantaneous jolt to the economy.
"Stabilisation of the financial markets is a critical first step, but even if they stabilise as we hope they will, broader economic recovery will not happen right away," he told the Economic Club of New York.
Preliminary calculations
According to preliminary calculations, a sell-off that intensified late in the session left Dow down 733.08, or 7.87 per cent, at 8,577.91. On Monday, Sept. 29, the Dow had its largest point drop 777.68. The Dow's massive decline marks its 20th triple-digit move in 23 sessions.
Broader stock indicators also skidded. The Standard & Poor's 500 index fell 90.17, or 9.03 per cent, to 907.84, and the Nasdaq composite index fell 150.68, or 8.47 per cent, to 1,628.33.
Analysts have warned that the market will see continued volatility as it tries to recover from the devastating losses of the last month, including the nearly 2,400-point plunge in the Dow over eight sessions. Such turbulence is typical after a huge decline, but the market's anxiety about the economy is also expected to cause gyrations in the weeks and months ahead.
Selling accelerated in the last hour of trading, a common occurrence during the eight days of heavy declines. One reason for the heavy selling: Mutual funds need to unload stock to pay investors who are bailing out of the market.
Investors apparently have come to believe that Monday's big rebound, a response to the government's plan to invest $250 billion in banks to get the lending business restarted, was overdone, given the problems elsewhere in the economy.
Source: Jamaica Gleaner
http://www.jamaica-gleaner.com/gleaner/20081016/business/business1.html
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