Fears of Recession Deepen Rout
Friday, October 10, 2008
Fear and foreboding took hold on Wall Street yesterday, as the stock market again plunged and investors became convinced that the nation is on the verge of a deep and prolonged recession. The rout continued in Japan, where stocks plummeted in early trading today.
The government took steps toward an extraordinary public investment in U.S. banks, and General Motors stock fell to its lowest price since 1950 on fears it will not be able to weather the downturn. Share prices fell across every industry and for each of the 30 stocks in the Dow Jones industrial average, which was down 679 points, or 7.3 percent, to 8579.19.
But the plummeting stock market could not be blamed on any single piece of horrible news -- there were no additional bank failures or government bailouts or corporate bankruptcies.
"I've never seen a panic like this," said David Wyss, chief economist at Standard & Poor's. "I've seen stock market drops, but not an overall panic."
The broad Standard & Poor's 500-stock index fell 7.6 percent, the seventh consecutive day of misery on Wall Street. The index has now fallen 42 percent from its all-time high one year ago yesterday and 22 percent this month alone. Stocks are on track for their worst calendar year since 1937.
Fear from Wall Street flooded Asia today, where markets were sharply lower in early trading. Japan's benchmark Nikkei average plunged more than 10 percent in the morning session, while Australian markets slid more than 7 percent and South Korean stocks fell as much as 8 percent.
"It's a domino effect. Stocks are falling out of bed. There is distrust in the market and distrust in the government that is trying to heal this," said Peter Cardillo, chief market economist with New York-based Avalon Partners.
Investors pulled a record $72 billion out of stock and bond mutual funds in September, the research firm TrimTabs said yesterday, and in the past week alone took out $52 billion.
Continuing its efforts to stanch the damage, the Bush administration yesterday said it was working on a plan to inject government cash into some of the nation's troubled banks. It may brief congressional leaders as early as today. Meanwhile, global economic policymakers are gathering in Washington today for the International Monetary Fund and World Bank annual meetings and will seek coordinated responses.
President Bush, who has said little publicly during this week's prolonged market dive, is scheduled to make a statement about the crisis this morning in the Rose Garden, the White House said late yesterday. He also will take the unusual step of meeting with finance ministers from the Group of Seven industrialized countries Saturday.
Press secretary Dana Perino said Bush would "assure the American people that they should be confident that economic officials are aggressively taking every action to stabilize our financial system."
While the stock market was the most visible sign of the distress, a more significant one may have been a rise in interest rates for short-term lending among banks. The spike came despite Wednesday's cut in the target interest rate of the world's major central banks, suggesting that banks are more fearful than ever of lending to each other.