On Monday, stock indexes had finally recovered from the huge sell-off of the previous week, after the downgrade of United States long-term debt by Standard Poor’s late on Aug. 5 unleashed days of painful market turmoil.
But by midweek, stocks were falling again, as investors worried about Europe’s debt crisis, and the possibility of recession in the United States intensified. The Standard Poor’s 500-stock index slid 1.5 percent on Friday, and closed down more than 4 percent for the week.
It was the fourth consecutive week of market declines as investors remained rattled. The latest signs of strain came from some European banks laden with debt from the region’s troubled economies — strains that could spread across the Atlantic.
Despite a meeting in Paris earlier in the week between the leaders of Germany and France to pledge greater economic coordination between nations sharing the euro, confidence quickly eroded in the markets over whether Europe’s policy makers have solutions to the Continent’s debt crisis.
In the United States, dismal economic data on Thursday pointed to an unexpectedly abrupt slowdown in manufacturing and a pickup in inflation.
Next week, the market’s attention will turn to the Federal Reserve’s annual symposium in Jackson Hole, Wyo., for signs of how confident the chairman of the Fed, Ben S. Bernanke, is about the strength of the American recovery.
At last year’s symposium, faced by a similar midyear slowdown, Mr. Bernanke paved the way for a second round of large-scale bond purchases, or quantitative easing.
But after the Fed this month already promised to keep short-term interest rates close to zero for the next two years, few economists expect further stimulus from the Fed.
On Friday, markets closed sharply lower in Asia and Europe, and that sentiment then carried over into the United States. Stocks had been briefly higher in the morning hours, but then slipped. Some analysts attributed the slide to technical factors and thin volume.
At the close, the S. P. 500 was down 17.12 points, or 1.5 percent, at 1,123.53. The Dow Jones industrial average fell 172.93 points, or 1.57 percent, to 10,817.65. The Nasdaq composite index lost 38.59 points, or 1.62 percent, to 2,341.84.
For the week, the S. P. was down 4.6 percent, the Dow fell 4 percent and the Nasdaq slid 6.6 percent. The steepest declines were on Thursday, when the indexes slipped more than 3 percent on persistent worries about the economy and Europe’s debt problems.
Stocks of companies most susceptible to slow growth and those related to banks have been hit. Technology, financials and industrials were among the sectors down more than 1 percent on Friday.
“You are still seeing a lot of the economically sensitive names leading us on the way down,” said Seth Setrakian, co-head of United States equities at First New York.
Some of the downturn on Wall Street was attributed to technical reasons. Friday, for example, was a day when options contracts expire, an event that can fuel volatility or market moves.
Analysts were also quick to point out that on a day before a summer weekend, low volumes could unfold into a “bleed” toward the end of the trading session — and indeed, what had been a relatively placid session in New York turned downward in the final hours.
“Just as importantly, any important policy makers that can come up with anything constructive are on vacation,” said Mr. Setrakian. “So what good news can come over the weekend?”
“So everyone is playing much lighter and much tighter,” he said. “It is very simply the data that has been coming out economically has not been constructive.”
Gold continued the sharp ascent it has seen over the last months, demonstrating that nervousness remained intense. Gold futures were up $30, to $1,848.90 an ounce.
Europe’s major stock indexes ended the day lower. The FTSE 100 in London fell 1 percent and the Euro Stoxx 50, a barometer of European blue-chip stocks, pulled back 2.15 percent.
Asian markets were also lower. The Nikkei 225 index in Japan lost 2.51 percent, and the major market indexes in Singapore and Hong Kong closed down more than 3 percent.
Tension on money markets, which some analysts said was overblown, awoke unpleasant memories of the seizure in interbank lending that came after the collapse of Lehman Brothers in 2008.
“Everybody is taking risk off the table,” said George Rusnak, national director of fixed income for Wells Fargo. “This is probably going to be a trend over the next several weeks. There is not a lot of robust trading going on right now.”
Mr. Rusnak and other analysts again noted that concerns had mounted about the banking sector, especially with respect to the exposure of American banks to their European counterparts.
One drag on the American markets, and specifically the tech sector, on Friday was Hewlett-Packard, which is considering plans to spin off the company’s personal computer business into a separate company and is spending $10 billion on Autonomy, a business software maker. Shares of Hewlett-Packard fell 20 percent, or $5.91, to $23.60.
The benchmark 10-year Treasury note was unchanged, and the yield remained at 2.07 percent. It had touched record lows below 2 percent in intraday trading on Thursday.
“The growth outlook being hurt in Europe, and the ongoing sluggish data we have seen in the United States is the underlying issue the stock market is trying to grapple with,” said Robert S. Tipp, a managing director and chief investment strategist for Prudential Fixed Income.
He said the crisis of confidence was evident as investors parked money in cash and short-term fixed-income assets.
One thing to worry about next week will be whether the European Central Bank can continue to hold down yields on Italian and Spanish bonds. If not, Italian and Spanish borrowing costs might reach the point where they became too expensive, raising the risk of default.
On Friday, Italian bonds and Spanish bonds dipped to 4.96 percent.
Jack Ewing and Julia Werdigier contributed reporting.
Article source: http://www.nytimes.com/2011/08/20/business/daily-stock-market-activity.html?partner=rss&emc=rss
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