Wall Street stumbled to a second day of losses Friday on fears that the global economy is weakening and that European banks may be unable to cope with the continent’s urgent financial troubles.
The downslide capped off another volatile week of trading with wild swings between losses and gains that ultimately left markets deeper in the red for the week and for the year. The three major indexes had started the day down and then rallied in mid-morning before diving again in the later part of the trading session. By closing bell, all had plummeted by at least 1.5 percent.
The blue-chip Dow Jones Industrial Average ended the day down 173 points, or 1.6 percent. The Standard & Poor’s 500 shed 17 points, or 1.5 percent. The tech-heavy Nasdaq lost 39 points, or about 1.6 percent.
The Dow and the S&P finished the week down more than 4 percent each, while the Nasdaq finished down more than 6 percent. Year-to-date, the Dow is now down 6.5 percent, while the S&P and the Nasdaq are down 10.7 percent and 11.7 percent, respectively.
The Dow’s drop was powered mostly by the bad fortune of computer maker Hewlett-Packard, which plunged more than 20 percent, closing at $23.60 a share. The sell-off was a reaction to the company’s announcement Thursday that it would stop making smartphones and tablet computers, try to spin off its personal computer business and buy British software maker Autonomy Corp. for nearly $12 billion.
The market decline followed the lead of major Asian exchanges, which plummeted 2 to 3 percent in overnight trading, and European markets, which also sold down early Friday.
European markets, however, recovered some of their losses by the end of the trading day there. The Stoxx 50 index of blue-chip companies based in the 17-nation euro zone finished the day down 1.2 percent. Germany’s DAX index closed at 2.19 percent after trading below 3 percent earlier in the session, and Britain’s FTSE 100 closed down 1 percent.
Financial stocks stabilized somewhat, but several continued to edge lower after Thursday’s sell-off. In Europe, investors sold another 3.4 percent off Societe Generale, which lost 12.3 percent Thursday. Its French peers BNP Paribas and Credit Agricole were down 4.3 percent and 1.7 percent after losing 6.8 percent and 7.3 percent Thursday, respectively. Germany’s Deutsche Bank slid another 2.2 percent, furthering its 5.3 percent decline from Thursday. In Britain, banking giants Lloyds TSB Banking Group and RBS lost 4.8 percent and 5.4 percent, respectively, adding to their losses Thursday of 9.3 percent and 11.3 percent.
In the United States, Citigroup led big banks lower with a loss of 4.3 percent on top of its 6.2 percent decline the previous day. J.P. Morgan Chase fell 2.4 percent, furthering Thursday’s loss of 3.8 percent. Wells Fargo tumbled 1.5 percent after falling 4.7 percent the day before.
Bank of America, which led losses among its peers Thursday with a 6 percent tumble, dropped only 0.6 percent to $6.97 per share Friday after announcing that it would cut 3,500 jobs to try to control costs.
Investors continued to put their money in gold as stocks fluctuated. Gold futures leveled to about $1,849 per ounce in afternoon trading, up 1.6 percent for the day. But yields on the 10-year Treasury, another safe haven, were steady at 2.08 percent, bouncing up from Thursday’s all-time record low. A higher yield indicates investors are less willing to accept a smaller return in exchange for the safety of lending money to the federal government.
Oil futures were up 28 cents Friday to $82.65 per barrel. At that level, oil is trading down about 17 percent from a month ago, which could spell good news for consumers at the pump if the decrease is sustained and prices for foreign oil also trade lower.
The worry for the United States, analysts said Friday, is that a return of the sell-off could spill over into the real economy.“The loss of household wealth on the back of this decline is worth about $2.3 to $2.4 trillion so far,” said Jacob Oubina, senior U.S. economist at RBC Capital Markets in New York. That could leave consumers — whose spending accounts for 70 percent of the economy — feeling too pinched to spend.
“For the average consumer, it means less wealth, less consumption and less money in their pocket,” Oubina said. And if consumers hoard their cash, that could hurt businesses and bring down stock prices more, creating a “vicious cycle.”
U.S. investors are also eyeing the European economy with deep concern. Europe is likewise caught in a bad spiral, analysts said. Increasing signs of an economic slowdown there are casting doubt on the ability of highly indebted governments such as Italy and Spain to avoid the sort of crisis that forced Greece, Portugal and Ireland to seek international financial help. That, in turn, has eroded faith in the region’s banking system, since banks in France, Germany and elsewhere now hold tens of billions of dollars of government debt that might not be worth what they paid for it.
The net result: Banks are being forced to pay more to fund themselves, might become less willing to lend to one another and might ultimately cut their loans to businesses and consumers — a further drag on economic activity.
“Unchecked, this could lead to a grinding credit crunch in the Southern euro zone ... and be a major drag on economic recovery,” analysts for Morgan Stanley wrote in a recent research note on European banks.
“Beneath the volatility: grim underlying trends,” was the headline that Deutsche Bank research analyst Matt Spick put on a situation where bank funding costs are eroding profits and a lack of confidence in the system is creating a “slower-moving but still toxic funding crisis.”
“Bad news for banks and also the wider economy,” he said.
Earlier this week, the European Union’s statistical office reported only a 0.2 percent rise in gross domestic product, the broadest measure of economic growth, across its 27 member countries in the second quarter. Of particular concern was news that Germany’s GDP had slowed to 0.1 percent growth during the quarter.
“Germany has been the driver of growth over here,” said Matthew Czepliewicz, a banking analyst at Collins Stewart Hawkpoint in London.
In the United States, economic data have also been fueling worries among investors this week, indicating again that the economic recovery remains fragile. Bleak numbers on unemployment, housing and manufacturing compounded the anxiety over European woes and rattled share prices in every industry.
“I think the risk now is that we fall into another recession,” said Patrick Newport, an economist at IHS Global Insight in Lexington, Mass. “I think the risks have just changed very dramatically in the last couple of months. People are spooked.”
Data from the National Association of Realtors, a trade group, painted a depressing picture of the housing market, with sales of existing homes falling 3.5 percent in July to 4.67 million, the lowest rate in eight months. Economists had been expecting sales closer to 5 million.
“Just as mortgage rates are dropping, people are not applying to buy homes,” Newport said.
The latest figures on unemployment, considered another key piece in any recovery, also proved bleak. The Labor Department said Thursday that weekly unemployment benefits again rose above the 400,000 level last week, a benchmark figure that many economists take as a sign of a declining economic growth.
“Right now, it’s all about jobs in the U.S.,” said Kurt Rankin, an economist at PNC Financial Services Group. “Nothing is going to happen in the U.S. until some jobs are created.”
Jason Schenker, president of Prestige Economics, a forecasting firm in Austin, agreed.
“The U.S. economy is hobbling along,” he said, placing odds of a second recession at 50 percent.
Schneider reported from Berlin.