NEW YORK (AP) — Wall Street ended another terrible week Friday,
leaving major indexes down more than 6 percent as investors worried
that the recession will persist for at least the rest of the year
and that government intervention will do little to hasten a
recovery.
Investors shaved 100 points off the Dow Jones industrial
average just a day after the market’s best-known indicator dropped
to its lowest level since the depths of the last bear market, in
2002. Stocks of struggling financial companies were among the
hardest hit.
The Standard & Poor’s 500 index, the barometer most
closely watched by market pros, came close to its lowest point in
nearly 12 years.
“Right now, more than a crisis in mortgages or in housing,
we have a crisis in confidence. That is biggest problem in trying
to analyze the current market,” said James Stack, president of
market research firm InvesTech Research in Whitefish, Mont. “You
cannot analyze psychology.”
Wall Street has been sinking lower as investors come to
terms with the fact that the optimism behind a late-2008 rally was
clearly unfounded. Companies’ forecasts for this year, on top of a
dismal series of fourth-quarter earnings reports, pounded home the
reality that no one can determine when the recession will
end.
“It was a market that was built on that hope, and what
we’re seeing now is an unwinding of that,” said Todd Salamone,
director of trading and vice president of research at Schaeffer’s
Investment Research in Cincinnati, of the rally from late November
to early January.
The disappointment seen this week arose from the market’s
growing recognition that the Obama administration’s
multibillion-dollar stimulus and bailout programs are unlikely to
turn the economy around anytime soon.
“There were a lot of people that were banking on
Washington to get us out of this. I don’t know if there is anything
Washington can do,” Salamone said. He said the global economy is
going through the tedious process of reducing borrowing and working
through bad debt — something government help can’t speed
up.
With the week erasing whatever shreds of hope the market
had, there is virtually no chance of a rally on Wall Street. What
the market might see is a blip upward — but blips tend to evaporate
quickly.
That’s what happened Friday. Stocks erased some of their
losses after White House press secretary Robert Gibbs doused fears
that the government would nationalize crippled banks. Investors who
worried about seeing their shares wiped out by a government
takeover welcomed the news, but it didn’t ease broader concerns
about the economy.
The Dow Jones industrials briefly went into positive
territory, but quickly turned down again.
Salamone said investors had been too hopeful in late 2008
and at the start of this year that the new administration would be
able to swiftly disentangle the economy.
The Dow industrials fell 100.28 points, or 1.3 percent, to
7,365.67 after earlier falling more than 215 points. On Thursday,
the Dow broke through its Nov. 20 low of 7,552.29, and closed at
its lowest level since Oct. 9, 2002.
The Dow’s 6.2 percent slide for the week was its worst
performance since the week ended Oct. 10, when it lost 18.2
percent.
The Standard & Poor’s 500 index on Friday fell 8.89, or
1.14 percent, to 770.05. The benchmark most watched by traders came
within less than 2 points of its Nov. 20 close of 752.44, which was
its lowest since April 1997. It remains above its Nov. 21 trading
low of 741.02.
The Nasdaq composite index fell 1.59, or 0.11 percent, to
1,441.23.
For the week, the S&P fell 6.9 percent, while the
Nasdaq lost 6.1 percent.
Declining issues outnumbered advancers by about 3 to 1 on
the New York Stock Exchange, where volume came to 2.12 billion
shares.
The Russell 2000 index of smaller companies fell 5.75, or
1.4 percent, to 410.96.
Other world indicators also fell sharply. Britain’s FTSE
100 declined 3.2 percent, Germany’s DAX index tumbled 4.8 percent,
and France’s CAC-40 fell 4.3 percent.
Shares of financial bellwethers Citigroup Inc. and Bank of
America Corp. plunged on worries the government will have to take
control of them. Citigroup fell 22 percent, while Bank of America
fell 3.6 percent. But the stocks were down as much as 36 percent
during the session.
The fears about the banks are hurting shareholders of
those companies and dragging down the rest of the market because
the broader economy can’t function properly when banks are unable
to lend at more normal levels.
“Financing is the blood which runs through our nation’s
veins. It’s what keeps us alive,” said Lawrence Creatura, a
portfolio manager at Federated Clover Investment
Advisors.
He said the talk of nationalizing banks only underscores
the troubles with the economy.
“Things are clearly not normal. It’s not healthy. The
patient was on life support, and now what we’re talking about
getting out the paddle with respect to nationalization,” Creatura
said.
As investors dropped out of stocks, safer investments like
Treasury debt and gold rose. The price of the benchmark 10-year
Treasury note rose sharply, sending its yield down to 2.79 percent
from 2.86 percent. The yield on the three-month T-bill, considered
one of the safest investments, fell to 0.26 percent from 0.30
percent late Thursday.
Gold broke above $1,000, closing at $1,002.20 an ounce on
the New York Mercantile Exchange.
Investors are looking desperately at any safe havens
simply because the stock market, which rises and falls on
investors’ expectations for the future, sees only trouble
ahead.
“There’s still a big fear factor syndrome,” said Michael
Strauss, chief economist and market strategist at Commonfund.
“There is a focus on what is happening here and now instead of six
months to nine months from now.”
