Stock prices plunged in a broad sell-off Thursday amid renewed fears about the finances of countries and banks in Europe in a return of the investor skittishness that led to last week’s wild market swings.
While there was no one trigger for the market plunge, a spate of gloomy numbers and the return of panic selling reawakened fears of another recession.
Aug. 18 (Bloomberg) -– Simon Maughan, co-head of European equities at MF Global, talks about the peformance of global financial markets and the outlook for the economy. Stocks sank while Treasuries rallied, pushing yields to a record low, amid growing concern the economy is slowing and speculation that European banks lack sufficient capital. Maughan speaks with Adam Johnson on Bloomberg Television's "InBusiness with Margaret Brennan." (Source: Bloomberg)
Stocks sink amid more signs of recovery’s struggles
How stable is the banking sector?
Bleak numbers for U.S. jobs, housing and manufacturing compounded the anxiety over European woes, rattling share prices in every industry, and indicated again that the economic recovery remains fragile.
All three major stock indexes more than wiped out their gains from earlier this week. For the year, the Dow Jones industrial average is down 5 percent, the Standard & Poor’s 500-stock index is down 9 percent and the Nasdaq composite index is down 10 percent.
The sell-off continued in Asian markets Friday. Japan’s blue-chip Nikkei 225 index ended its morning session down 2.15 percent, and stocks dropped sharply in Seoul, Sydney and Hong Kong.
“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 disappointing 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.
Jobless claims rise
The latest figures on unemployment, considered another key piece in any recovery, also proved disconcerting. 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 trajectory.
“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.”
But Rankin and other economists said that what sent stock prices into decline on Thursday had less to do with conditions in the United States, which have been well known, than with signs of worsening conditions in Europe.
The decline in U.S. markets came after sharp sell-offs overnight in Europe. Germany’s blue-chip DAX index tumbled 5.8 percent, Britain’s FTSE 100 fell 4.5 percent, and France’s CAC 40 was down 5.5 percent.
Major European bank stocks ranked among the biggest losers as investors showed their doubts about their health and the continued debt crises on the continent.
The stability of the European banking system has been a persistent concern — one that the International Monetary Fund, the United States and others have encouraged officials in the region to tend to more quickly.
But progress has been slow. The 17 banking systems are overseen by 17 different countries, each with its own problems, such as bad housing loans made by Spain’s “cajas,” or savings banks; the overseas investments of Germany’s regional Landesbank; and an Irish banking system that grew to be several times the size of the country’s economy.
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