Stocks tumble as worries about global recession grow
| New York
Investors rushed to get out of stocks Thursday morning as they worried about the prospects for a global recession.
At about noon, the widely watched Dow Jones Industrial Average was off 370 points, or 3.3 percent. The sell-off was broad with the Standard & Poor鈥檚 and Nasdaq averages also tumbling.
The weakness in stocks also spread to economy-sensitive commodities, with the prices of copper and oil falling sharply. The price of gold fell by more than $70 an ounce, about 4 percent, as the US dollar strengthened compared with the euro.
The stock sell-off was partly a follow-on to Wednesday, when the Dow Jones Industrial Average dropped 283.22 points after the Federal Reserve said 鈥渢here are significant downside risks to the economic outlook.鈥�
In its statement, the Fed referred to recent indications of 鈥渃ontinuing weakness鈥� in the labor market. However, new claims for unemployment actually dropped by 9,000 last week, the Department of Labor reported Thursday morning. Still, the claims remained at a relatively high level, indicating that the jobs market remains weak.
鈥淭he four-week moving average is creeping higher, which is not good,鈥� says Anthony Valeri, a market strategist at LPL Financial in San Diego. 鈥淚f this recent blip up were to continue, you could make the argument we鈥檙e going into a recession.鈥�
In his morning comment Thursday, Fred Dickson of D.A. Davidson & Co. in Lake Oswego, Ore., said there was a 鈥減erfect storm of bad news鈥� hitting the financial markets from Washington, Europe, and Asia.
In Europe, manufacturing and services activity fell in August for the first time in two years. According to an analysis by Barclays Capital Research in New York, the data indicate the manufacturing sector in Europe 鈥渋s set to experience recession,鈥� with a considerable gap between new orders and inventories.
Even Germany, which has been buoyant all summer, appears to have hit the brakes, according to an analysis by IHS Global Insight in Lexington, Mass. 鈥淕rowth was similarly marginal in France following a sharp loss of momentum in September itself,鈥� IHS wrote in its analysis.
A slowdown also seems to be taking place in China. A widely watched HSBC index of economic activity indicated that the Chinese economy was starting to contract.
鈥淎gain, this is a sign we may be flirting with recession, if we are not already in one,鈥� Mr. Valeri says.
In Washington on Wednesday, the House voted down legislation that would have funded the US government through Nov. 18. Republicans objected to spending $6.9 billion on disaster relief without any cuts elsewhere to pay for it, while some Democrats voted against the bill because they wanted more disaster relief.
If Congress can鈥檛 reach an agreement, the US government could shut down by Monday. However, the two sides will probably reach some compromise before they leave this weekend, says Pete Davis of Davis Capital Investment Ideas in his morning blog Thursday. 鈥淭here's no desire on the part of any congressional leaders to shut down the government this time around,鈥� he writes.
