Stock markets plunge as losing streak extends to six weeks, longest since 2002

June 10, 2011

Wall Street limped to a six-week losing streak Friday, its longest since 2002, reflecting a gathering sentiment among investors that the economic recovery is going awry.

The losses, which pushed the Dow Jones industrial average below 12,000, have piled up after an exuberant eight-month run in which corporate profits and share prices soared. Retirement accounts of ordinary Americans began to look healthy again. The unemployment rate remained high but started to inch down.

Now, momentum from that stretch is fading fast, posing a headache for the Obama administration as it seeks to tout its record on the economy.

Recent data appear to confirm the turn for the worse. The jobless rate is rising. Housing prices have fallen below their financial-crisis lows. Gridlock in Washington over the nation’s debt is tying the hands of policymakers. Europe’s fiscal problems seem to have no solution in sight.

Given the news, many Americans no longer feel confident that the nation’s economic problems will work themselves out, analysts said.

“I don’t see any catalyst for rapid economic growth in the near future, and other investors share my opinion and they are deciding to deploy their assets elsewhere,” said Matt McCormick, portfolio manager and banking analyst at Bahl & Gaynor Investment Counsel. “This is a natural reaction to a weakening economy and geopolitical concerns and a lack of political leadership in Washington.”

Even senior policymakers say the pace of recovery has not matched their expectations.

Federal Reserve Chairman Ben S. Bernanke said at a policy speech in Atlanta this week that the economy’s setbacks are temporary, but he acknowledged that growth has been more tepid than his agency expected. Stocks fell as he made his remarks.

Over the past six weeks, the Dow has lost 6.7 percent of its value, down from its peak in April when bullish analysts were predicting the index would move above 14,000. Instead, the Dow closed Friday about 50 points below 12,000.

The Standard & Poor’s 500-stock index, a broader measure of stocks, sank by about 1.4 percent Friday, while the tech-heavy Nasdaq fell 1.5 percent, more than wiping out all of its gains for the year despite recent enthusiasm for technology-related companies.

Global markets are facing a similar slump, with stock exchanges in London, China and Australia all down for the year.

“There’s a fear factor that the global economy is slowing down,” said Peter Cardillo, chief market economist at Avalon Partners, a New York brokerage house. “Basically it’s feeding on itself.”

Of course, the market’s streak of losses is minor compared with the massive sell-offs of the financial crisis. In recent weeks, stocks have been consistently declining rather than swinging violently, as they did in 2008 and 2009. Overall, the Dow is still up 80 percent from its March 2009 low of 6,547.

Investor fears are also driving down some commodity prices. Copper prices, for example, are down 1.1 percent this week.

“If industrial metals decline, it’s anticipation of a decline in global demand and a slowdown in global demand” over the next six months, said Sam Stovall, chief investment strategist for Standard & Poor’s Equity Research Services.

Crude oil prices fell about 2.6 percent to end the day below $100 a barrel. News reports in Saudi Arabia said the world’s biggest oil exporter would increase production to 10 million barrels per day, the highest in 30 years.

The market slump is also continuing to send investors into the safety of U.S. government bonds.

Yields slid on the 10-year Treasury bond Friday, ending the day at 2.97 percent. That is down from more than 3 percent at the beginning of the year. Bond prices and yields move in opposite directions, and a lower yield generally means that buyers are willing to earn less on their investment in return for holding government debt.

Analysts expect the slide will continue until investors have good news to cheer on the economy, but few believe that the malaise will continue forever.

The Dow could fall “maybe another 400 points below where we are now” before starting to recover, said Phil Orlando, chief equity market strategist at New York asset manager Federated Investors.

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