“Investors seemed to be worried about owning anything other than canned goods,” said Adam Sieminski, chief energy economist for Deutsche Bank. “There’s a real fear out there that nothing is safe right now.”
New indications that China’s massive economy might finally be cooling off appeared to scare markets, as did the steady trickle of bad news out of Europe. After plunging more than 5 percent in afternoon trading, the Dow rebounded slightly to close down 391 points, or 3.5 percent.
At a time when job insecurity and unemployment are already high, Americans have seen the value of their 401(k)s and other retirement funds erode sharply in recent weeks during wild market swings. Since hitting its summer high of 12,681.16 on July 22, the Dow has plunged more than 1,200 points, or nearly 10 percent, in the past two months. In the past four days, the Standard & Poor’s 500-stock index has fallen 7.1 percent.
Wednesday’s extraordinary actions by the Federal Reserve to boost the economy had little impact. Investors seemed to pay more attention to the central bank’s announcement that it saw “significant downside risks to the U.S. economy” than to the news that it would purchase $400 billion in long-term Treasury securities to reduce interest rates.
The slump in commodities was perhaps the starkest illustration of the newfound crisis of confidence. Initial reports indicated that manufacturing in China, the world’s largest consumer of metals, could slip for the third month in a row. In recent months, Chinese officials have moved to tighten credit to prevent the economy from overheating.
“There’s a real uncertainty about global growth now that China’s economy finally seems to be responding to monetary tightening,” said Cameron Brandt, a global markets analyst at EPFR Global. “That great escape valve for optimists is now closing off.”
Chinese stocks closed down 4.9 percent Thursday as measured by the Shanghai composite index and were down 1.2 percent in early trading Friday. Hong Kong’s Hang Seng index fell nearly 3 percent early Friday, and Australia’s S&P/ASX 200 dropped 1.1 percent. Japanese markets were closed Friday for a national holiday.
Commodity prices dropped Thursday, reflecting reduced demand for oil, agricultural products and precious metals. An S&P index of 24 raw materials slumped more than 5 percent, wiping out the past year’s gains. Crude oil fell more than 7 percent, to about $80 a barrel, its lowest price in four weeks. Copper prices fell to a one-year low.