Rout Rounds Globe, Pounds U.S. Stocks
Saturday, October 25, 2008
Investor fears of a global recession sent stocks tumbling again yesterday, ending another brutal week with Wall Street in the red.
But U.S. stocks escaped the level of losses overseas, where several markets plummeted after data showed that the British economy had contracted. Fear that U.S. markets would follow suit caused a morning frenzy in futures trading before the markets opened.
The Dow Jones industrial average fell nearly 500 points in early trading, but regained ground. It closed down 3.59 percent, or 312.30 points at 8378.95, its lowest close since April 2003. The broader Standard & Poor's 500-stock index was down 3.45 percent, or 31.34 points, closing at 876.77. The Dow and S&P were down 5.45 percent and 5.8 percent, respectively, this week.
The tech-heavy Nasdaq composite index, which was down 3.23 percent, or 51.88 points to close at 1552.03 yesterday, had the roughest week. It was down 9.3 percent for the week.
Investors were unnerved by a series of poor earnings reports and indications the financial crisis would weigh down profits into 2009. Several blue-chip firms have lowered their earnings forecasts and announced thousands of layoffs.
At the same time, the government's response to the financial crisis continues to evolve. The Treasury Department is now working on ways to broaden its $700 billion bank rescue program to assist insurance companies and help them avoid the fate of American International Group, which nearly collapsed last month. And PNC Financial Services Group is using a cash injection from the government program to help it buy National City, the struggling Cleveland-based bank.
But according to analysts and traders, investors generally are focused on a steady stream of poor corporate earnings reports, including from the auto sector. Toyota, the world's second-largest automaker, reported its first drop in quarterly sales in seven years yesterday. Chrysler said that it will cut 25 percent of its salaried workforce starting next month.
The price of crude oil continued to fall yesterday despite a move by major oil exporting countries to slash output. It fell 5.4 percent to $64.15 a barrel yesterday. Oil prices have already fallen significantly since hitting their peak of $147 a barrel in July, and some analysts now predict they could fall to as low as $50 a barrel.
OPEC's supply cut is not enough to address falling demand, said Thomas Hartmann, a broker and analyst at California-based Altavest Worldwide Trading. "The market just doesn't believe it's going to make much of a difference," he said.
Other commodities, from wheat to copper, are also taking a beating as traders cash out to cover their losses in the stock market. The dollar has rallied in recent weeks, making commodities cheaper and bringing down prices, said Adam Birzgalis, a market strategist for LaSalle Futures in Chicago.
Gold, a traditional safe haven in market turmoil, is down 16 percent this year, but was up $16.10 an ounce to $729.10 yesterday. "It's an overall unwinding and deleveraging across many asset classes," said Win Thin, a senior currency strategist at Brown Brothers Harriman in New York. "We don't know how long it's going to keep going, but it doesn't appear to be running out of steam."
Meanwhile, existing-home sales rose 5.5 percent to a seasonally adjusted annual rate of 5.18 million units in September and the median sales price fell to $191,600, down 9 percent from a year ago. The bigger-than-expected increase in sales continues a trend of buyers taking advantage of a spike in foreclosures and picking up cheap homes.
The rebound is not likely to last, Patrick Newport, U.S. economist for research firm Global Insight, said in a note yesterday. A "tight labor market, tight credit and wide mortgage spreads should dampen demand enough to depress sales going forward," he said.