August 7, 2022

Stocks Fall Sharply, Then Cut Losses

Analysts could point to no single reason for the wide swing, but signs of a sluggish American economy and continued European debt troubles have unsettled investors for months. On Thursday, investors got an added surprise when the International Energy Agency announced its members would release oil into the market from reserves.

In the oil market, crude oil prices fell in the wake of the announcement by the I.E.A. that the United States would provide half of the 60 million barrels of petroleum reserves being released to world markets, with other nations releasing the rest, to replace some of the oil production lost due to the conflict in Libya. On Wall Street, shares in energy companies stocks in the broader market took a hit, declining more than 2.5 percent in late afternoon trading.

By day’s end, the Dow Jones industrial average closed off 59.67 points, a loss of 0.49 percent, to 12,050.00. The Standard Poor’s 500-stock index ended at 1,283.50, off 3.64 points, or 0.28 percent, while the Nasdaq composite index actually rose by the close of trading, adding 17.56 points, or 0.66 percent, to 2,686.75.

While some analysts attributed the declines to developments related to the economy in the United States, others said the I.E.A announcement had made the market nervous about the reasons behind it.

“It shocked the market,” said Doug Cote, the chief market strategist for ING Investment Management. “What it indicates to me was that the problems were worse than my data suggests. My data suggests we are in a relatively normal recovery.”

In recent months, statistics have trickled out suggesting the challenges to the United States economy, including a slowdown in hiring in May and a housing sector that is still trying to recover.

On Wednesday, the Federal Reserve said the economy was not expanding as quickly as predicted and forecast a growth rate of 2.7 percent to 2.9 percent this year and 3.3 percent to 3.7 percent next year, below previous forecasts.

The nation’s central bank also said it would complete the planned purchase of $600 billion in Treasury securities next week, then pause in its economic rescue efforts, doing nothing new for now to push forward growth.

Mr. Cote said the markets had already priced in the pace of the economic growth in the United States and the euro zone problems, and that the reason for the market declines, which lasted most of the day, could be the uncertainty behind the I.E.A. statement.

“This looks like thinly veiled stimulus,” Mr. Cote said. “The big question weighing on the market is why now?”

The energy secretary, Steven Chu, said in a statement that the action was being taken “in response to the ongoing loss of crude oil due to supply disruptions in Libya and other countries and their impact on the global economic recovery.”

But several analysts said that the market had already responded to the lack of Libyan oil.

“The market had already been moving lower in terms of price,” said Mark Routt, a senior consultant for KBC Energy Economics. “All these questions come to the point of ‘Why now?’”

European markets were down, in some cases more than 2 percent. Concerns about Greek debt troubles have continued to weigh on the markets, and bank stocks were down nearly 2 percent in the United States.

Jean-Claude Trichet, president of the European Central Bank, said late on Wednesday that the link between the debt problem and banks was “the most serious threat” to financial stability in the European Union, according to Bloomberg News.

“Investors are worried about the same things that have been worrying them for some months,” said Adrian Darley, head of European equities at Ignis Asset Management in London. “It’s the weak U.S. data, a consensus of overheating in China and concerns about Europe. The Greek situation is still unsolved and markets are going to remain very nervous.” 

Stanley Nabi, the chief strategist at Silvercrest Asset Management Group, said the Europe debt troubles were only one of the factors affecting the market on Thursday.

Julia Werdigier contributed reporting from London.

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