February 26, 2024

Wall Street Joins Global Stock Plunge After Fed Move

The downcast mood appeared to be reflected across the board. Stocks fell in Asia, Europe and on Wall Street, where equities were down more than 4 percent about a half hour before the end of the trading session. Bond prices soared for a fifth consecutive trading session, pushing the United States benchmark yield to new lows. Commodities such as oil and precious metals retreated.

“Today, we really seem to be stuck in a negative spiral,” said Matthias Jasper, head of equities at WGZ Bank in Düsseldorf. “Investors just want to keep their exposure low and watch from the sidelines.” Taking its cues from markets in Asia and Europe, the stock market in the United States raced lower at the opening.

By 3:30 p.m., the Dow Jones industrial average was down about 490 points, or 4.4 percent, at 10,633.02. The Standard Poor’s 500-stock index and the Nasdaq composite showed comparable declines.

On Wall Street, all 10 sectors of the broader market were in the red, from declines of more than 2 percent in telecommunications stocks to more than 5 percent in materials, which are susceptible to growth prospects.

In what may be a bellwether trend, FedEx on Thursday cut its expectations for earnings for the fiscal year, citing a slowdown in global growth. Its stock was down more than 8 percent.

The prospect of a bear market hovered during intraday trading, when in the broader market as measured by the SP approached a decline of nearly 20 percent. In intra-day trading, the SP hovered around the closing low for the year, which was 1,119.46 on Aug. 8. That was about 18 percent down from the high of April 29, when the SP closed at 1,363.61.

A review on Thursday by Standard Poor’s showed that the market capitalization of publicly-traded equities around the world had fallen by more than 17 percent, or $9.2 trillion, since July 1st.

As concerns about economic growth were reawakened, commodities fell. Crude oil futures traded in New York were down about $5.60, or 6.5 percent, at $80.30 a barrel. Gold, considered a safe haven asset, was down sharply, with Comex gold futures declining more than 3 percent to $1,739.

“I think that the market had performed so bullishly across all the precious metals that a correction was probably in the offing,” said James Steel, an analyst at HSBC. “And it may have been used as a convenient place for some profit-taking.”

When the price of gold moved so quickly below $1,800, he added, it encouraged further selling. With sustained equity losses, investors could be using gold as it was meant to be used — to raise cash.

“This might sound perverse but gold is actually fulfilling its traditional role allowing you to raise cash in uncertain times,” Mr. Steel said.

Paul Zemsky, the chief investment officer of multi-asset strategies for ING Investment Management, said crude was falling, as were industrial metals such as copper, as the markets realigned their expectations for the global economy as weak data continued to trickle out of Europe and other regions.

“As people ratchet down their growth expectations, we need less commodities,” he said. “It is a pretty ugly day for stocks.”

On Thursday, the yield on 10-year United States Treasury securities hit a new low of 1.71 percent.

Stocks had fallen in the United States 2 percent or more on Wednesday after the Federal Reserve announced that a complete economic recovery was still years away, adding that the United States economy has “significant downside risks to the economic outlook, including strains in global financial markets.”

The Fed offered the grim assessment of the economy as it also announced it would buy long-term Treasury bonds and sell short-term bonds to help stimulate lending and growth.

“The initial and follow-up reaction from the equity market is likely the realization that the Fed has little left to offer, that Washington is a mess, and their only hope is to ‘ride it out’ over a long period of time,” said Kevin H. Giddis, the executive managing director and president for fixed-income capital markets at Morgan Keegan Company.

“This is about to get ugly and there is very little anyone can do about it,” he added in a research note

The Fed pointed to a number of long-term problems in the American economy, including high unemployment and a depressed housing market. In addition, Moody’s Investors Service downgraded ratings on three big American banks — Bank of America, Wells Fargo and Citigroup — saying government support had become less likely in the event of financial trouble.

The Fed’s statement “continued to suggest that the Fed funds rate will remain on hold until at least mid-2013,” said Rob Carnell, an analyst at ING in London. He added that quantitative easing could be introduced as early as November.

Niki Kitsantonis, Elisabetta Povoledo, Kevin Drew, Robert Pear and Jennifer Steinhauer contributed reporting.

Article source: http://www.nytimes.com/2011/09/23/business/global/daily-stock-market-activity.html?partner=rss&emc=rss

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