Stocks end volatile week in the red

August 19, 2011

Wall Street finished another volatile week of trading Friday with a heavy loss as investors fled stocks on worries about the economy and the ability of European banks to cope.

The blue-chip Dow Jones Industrial Average finished Friday down 1.6 percent, while the Standard & Poor’s 500, a broader market measure, shed 1.5 percent. The tech-heavy Nasdaq retreated about 1.6 percent.

The slides came after markets sought to recover some of their ground from Thursday’s heavy losses. But in the final hour of trading, the sellers came back in force, moving each index down deeper into the red for the week and for the year.

The Dow and S&P 500 each finished the week down more than 4 percent, while Nasdaq finished down more than 6 percent. Year-to-date, the Dow is down 6.5 percent, while S&P and Nasdaq are down 10.7 percent and 11.7 percent, respectively.

The Dow’s drop was powered mostly by the bad fortune of 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 for nearly $12 billion.

But investors were also keeping an eye on Europe, where increasing signs of a slowing economy there are casting doubt on the ability of highly indebted governments, such as Italy’s and Spain’s, 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 hold tens of billions of dollars of government debt that might not be worth what they paid for it.

As a result, investors punished shares of big European banks such as Societe Generale and BNP Paribas, which shed 14 percent and 12 percent, respectively, during the week’s trading. The lack of confidence in the increasingly interconnected financial sector spilled over to the United States, where financials also suffered heavy losses this week. Shares of Citigroup lost more than 10 percent, while Morgan Stanley, J.P. Morgan Chase and Bank of America shed 5 percent, 4 percent and 3 percent, respectively, during the week.

The worry for the United States, analysts said, is that a continuation of the sell-offs could spill over into the real economy, which many say is already standing on the brink of recession. Indeed, statistics this week showed a slowdown in the housing market, despite mortgage rates that dipped to the lowest levels in half a century.

“The loss of household wealth on the back of this decline is worth about $2.3 [trillion] 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. If consumers hoard their cash, that could hurt businesses and bring down stock prices more, he said.

With no end to the cycle in sight, investors continued to put their money in gold. Gold futures spent the week reaching all-time nominal highs every day, ending the week up 6.2 percent at about $1,849 per ounce. That’s up more than $100 from last Friday.

Yields on the 10-year Treasury, another haven, flirted with record lows all week. They finished the week sharply lower at 2.08 percent after rebounding somewhat from Thursday’s all-time low of about 2 percent. That’s still down significantly from 2.26 percent last Friday and more than 3.3 percent at the beginning of the year.

Despite the recent downgrade of the United States’ credit rating by Standard & Poor’s, investors were willing to accept a lower return in exchange for the safety of lending their money to the federal government.

The economic worries also sent oil futures down about 3.2 percent on the week’s trading to $82.26 a barrel for September delivery on the New York Mercantile Exchange. But the gap between oil prices in New York and the more widely used benchmark Brent crude sold on the London exchange grew to more than $26 per barrel. That means consumers might not see big savings at the pump.

Staff writer Howard Schneider in Berlin contributed to this report.

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