Bush's Economic Proposal Fails to Stop Stocks' Slide
U.S. stocks posted their steepest weekly drop since July 2002 after President Bush's proposal to stimulate the economy failed to allay investors' concern about a possible recession. Stocks also were hit last week by a flow of weak economic data.
Bush proposed an economic stimulus package of up to $150 billion and Federal Reserve Chairman Ben S. Bernanke said last week that the central bank is ready to take "substantive additional action" on interest rates.
"You can see almost every member of our government talking about their concern for the economy and what they're trying to do to help, but that only makes it feel worse from the financial markets' point of view," said David Pearl, head of U.S. equities at Epoch Investment Partners in New York.
Housing starts fell 14 percent in December, concluding the worst year for the industry since 1980, the Commerce Department said. Other government reports, showing retail sales fell for the first time since June and manufacturing in the Philadelphia region slid to a six-year low, heightened concern that the housing slowdown is infecting the broader economy.
"It looks to me like we're already in a recession," said Jason Cooper at 1st Source Investment Advisors in South Bend, Ind. "There's nothing out there to say the worst is over."
The Standard & Poor's 500-stock index fell 5.4 percent last week, to 1325.19, the lowest level since September 2006. The benchmark for U.S. equities has declined 9.8 percent this year, its worst-ever start.
The Dow Jones industrial average fell 4 percent, to 12,099.30, extending its 2008 decline to 8.8 percent. The Nasdaq composite index fell 4.1 percent to 2340.02. The Russell 2000 index fell 4.5 percent to 673.18. The small-company index's 21 percent decline from its July record marks its first bear-market retreat since 2002. Two-year Treasury yields declined to 2.35 percent, the lowest since May 2004.
U.S. stock markets are closed tomorrow for the Martin Luther King Jr. holiday.
The Treasury will auction $21 billion of three-month bills and $19 billion of six-month bills on Tuesday. Both yielded 2.85 percent in when-issued trading. The Treasury will sell one-month bills on Wednesday.
-- Bloomberg News