Published: Tuesday November 11, 2008
Wall Street’s initial enthusiasm about a US$586 billion Chinese stimulus package fizzled out yesterday, as investors caved in to anxieties about how US companies will survive a severe pullback in spending.
Stocks got a short-lived boost by China’s plans to boost its economy through a mix of spending, subsidies, looser credit policies and tax cuts. The package could benefit multinational companies with business in China such as General Electric Co and Caterpillar Inc.
But Wall Street’s optimism quickly waned, as it has tended to do since the mid-September downfall of Lehman Brothers Holdings Inc and government takeover of the troubled insurance giant American International Group (AIG). Market participants realised that while China’s stimulus is a positive sign that governments around the world are working to fix the global economy, the stimulus itself will likely have only a limited effect in the US.
There was little news yesterday to placate investors worried about the health of corporate America. AIG got more money from the US government yesterday, but the nation’s struggling automakers have yet to hear whether they, too, will get federal aid. And electronics retailer Circuit City Stores Inc filed for bankruptcy protection yesterday.
With few signs of recovery in the economy, there are not many investors confident enough yet to make big bets on stocks, although they look cheap; the major indices are down about 40 per cent from their October 2007 peaks.
“They’d like to be optimistic, but individual investors are still very worried,” said Hugh Johnson, chief investment officer of Johnson Illington Advisors.
Uncertainty about the economic outlook is “likely to hold any recovery somewhat in check. We’re arguably undervalued, so we can work our way higher. But it's not going to be with a lot of gusto.”
According to preliminary calculations, the Dow Jones industrial average fell 73.27, or 0.82 per cent, to 8,870.54, after rising by 215 points in early trading and tumbling by as many as 183.
But trading was fairly orderly in the last hour — in recent weeks, stocks have often seen high volatility late in the day.
Broader indices also ended lower. The Standard & Poor's 500 index fell 11.78, or 1.27 per cent, to 919.21, and the Nasdaq composite index fell 30.66, or 1.86 per cent, to 1,616.74.The Cross Listed Index shed 0.65 points on its way to 77.92.
Source: Trinidad Guardian Newspapers