Business

Stocks plunge as attention returns to weak economy

Font Size:

Stocks plunged again Wednesday as investors turned their attention back to the weak economy and Europe’s debt problems. More than half of the big gains that followed a Federal Reserve pledge to extend super-low interest rates vanished.

The Dow Jones industrial average fell 232 points, or 2.1 percent, to 11,007 in afternoon trading. The average plummeted more than 300 points within minutes of the opening bell and was down as many as 468 points by late morning.

On Tuesday, the Dow gained 429 points after the Fed said it planned to keep interest rates extremely low at least through the middle of 2013. It was the first time the Fed announced such a timetable. But the day’s gains were likely just a blip caused by computerized trading based on programs that dictate when to buy or sell, some investors and analysts said.

The rally was “so unbelievably fast, it’s as though every computer on Wall Street hit the point where the program said ‘buy, buy, buy, buy, buy’,” said Daniel Alpert, managing partner of investment bank Westwood Capital. “Machines don’t read Fed announcements, people do — and they were reacting in a negative way.”

That was more evident Wednesday, as investors focused on the Fed’s pessimistic assessment of the economy: The central bank expects it to stay weak for at least two more years.

“Now it gets back to the fundamentals” of the economy, said Mark Lamkin, founder of Lamkin Wealth Management, which manages $250 million.

The Standard & Poor’s 500 fell 13 points, or 1.1 percent, to 1,160. The Nasdaq fell 24, or 1 percent, to 2,458.

Gold rose above $1,800 per ounce for the first time as money poured into investments considered safe at a volatile time for the financial markets. Gold was up $41.70 per ounce to $1,784.90 in afternoon trading after earlier climbing as high as $1,801.

The 10-year Treasury note, which has also served as a haven, also rose sharply. Its yield fell to 2.20 percent from 2.26 percent late Tuesday. It had reached a record low of 2.03 percent on Tuesday. A bond’s yield falls when its price rises.

Investors have bought U.S. government debt even after S&P stripped the United States of its top credit rating, AAA, late last week.

On top of concerns about the U.S. economy, attention is still on Europe, where investors worry that Italy and Spain may be the next countries unable to repay their debts.

The European financial system has been battered by fears about banks’ holdings of bonds issued by heavily-indebted countries, such as Greece and Portugal. This week, those concerns have evolved into fears about banks’ exposure to other banks, analysts say. Societe Generale, France’s second largest bank, was down more than 20 percent at one point.

“It’s the same game of Old Maid playing out in Europe that was played out here during the subprime mortgage crisis,” said Quincy Krosby, an economist and market strategist with Prudential financial. As the contagion hits ever-larger countries, such as France, “the ramifications for the banks are more detrimental,” Krosby said.

In Asia, the concern is that higher inflation in China could lead to slower growth. China, Brazil and other less-developed countries have provided the strongest economic growth since the world began to recover from recession in 2009.

Financial stocks led the U.S. market lower. Bank of New York Mellon Corp. fell 6.8 percent after it said it will cut 1,500 jobs, or about 3 percent of its global work force, to lower costs. As a group, financial stocks in the S&P 500 fell 5.4 percent, the biggest decline of the 10 industries that make up the index.

One big reason: investors don’t know how exposed U.S. banks are to the European financial system, via their ownership of debt of European countries and banks, Krosby said. From a trader’s perspective, “at the end of the day, if there’s one cockroach, there’s a million,” she said.

Europe accounts for about 17 percent of JPMorgan Chase & Co.’s revenue and 21 percent of its assets, the bank’s CEO Jamie Dimon told CNBC. Its stock is down 2.2 percent. Dimon also said he expected leaders in Europe to resolve the debt crisis without harm to the bank’s investments.

Stocks have dropped so much that six companies have withdrawn plans to sell their stocks this week on U.S. markets for the first time, according to Dealogic. That brings the total number of withdrawn initial public offers, or IPOs, to 65 so far this year. That’s the most through Aug. 10 for any year since 2001.

On Tuesday, the Dow swung 600 points in the final 90 minutes of trading, from a 205-point decline to the 429 point gain, after the Fed announcement, which also said the central bank was considering “policy tools” to help the economy. It was the Dow’s 10th-best point gain.

But on Tuesday the central bank acknowledged that the temporary factors it has said slowed growth — like high gas prices and disruption to manufacturers following Japan’s March earthquake —were only part of the reason that the economy grew at its slowest pace in the first half of this year since the recession ended in June 2009.

The statement “was essentially a full admission that the Fed had not fully gotten their arms around the permanence to the weak trends in the economy,” William O’Donnell, head of U.S. Treasury strategy at RBS Securities, wrote in a report.

Economists have become more pessimistic about the U.S. recovery in the last month. Manufacturing is barely growing, people are spending less, and the job market isn’t expanding fast enough to significantly bring down unemployment.

Concerns about the global economy have overshadowed strong corporate earnings. On Wednesday, the parent of Macy’s and Bloomingdale’s said profits were 64 percent higher than a year ago because of strong sales. Quarterly profit was up 52 percent at Polo Ralph Lauren Corp.

Cree Inc., a maker of products used in light-emitting diodes, or LEDs, rose 14.9 percent after it reported earnings late Tuesday that were better than analysts expected.

And the Walt Disney Co. said late Tuesday that profit rose 11 percent last quarter. Stronger revenue from its ESPN sports television network and theme parks made up for lackluster box-office results. Its stock fell 9.6 percent.

—-

AP Business Writers Sarah DiLorenzo and Daniel Wagner contributed to this report.

Kells Hetherington

PREMIUM ARTICLE: Subscribe To Keep Reading

Sign up

By subscribing you agree to our Terms of Use

You're signed up!

Sign up

By subscribing you agree to our Terms of Use

You're signed up!
Sign up

By subscribing you agree to our Terms of Use

You're signed up!

Sign up

By subscribing you agree to our Terms of Use

You're signed up!
Sign up

By subscribing you agree to our Terms of Use

You're signed up!

Sign Up

By subscribing you agree to our Terms of Use

You're signed up!
Sign up

By subscribing you agree to our Terms of Use

You're signed up!
Sign up

By subscribing you agree to our Terms of Use

You're signed up!
BENEFITS READERS PASS PATRIOTS FOUNDERS
Daily and Breaking Newsletters
Daily Caller Shows
Ad Free Experience
Exclusive Articles
Custom Newsletters
Editor Daily Rundown
Behind The Scenes Coverage
Award Winning Documentaries
Patriot War Room
Patriot Live Chat
Exclusive Events
Gold Membership Card
Tucker Mug

What does Founders Club include?

Tucker Mug and Membership Card
Founders

Readers,

Instead of sucking up to the political and corporate powers that dominate America, The Daily Caller is fighting for you — our readers. We humbly ask you to consider joining us in this fight.

Now that millions of readers are rejecting the increasingly biased and even corrupt corporate media and joining us daily, there are powerful forces lined up to stop us: the old guard of the news media hopes to marginalize us; the big corporate ad agencies want to deprive us of revenue and put us out of business; senators threaten to have our reporters arrested for asking simple questions; the big tech platforms want to limit our ability to communicate with you; and the political party establishments feel threatened by our independence.

We don't complain -- we can't stand complainers -- but we do call it how we see it. We have a fight on our hands, and it's intense. We need your help to smash through the big tech, big media and big government blockade.

We're the insurgent outsiders for a reason: our deep-dive investigations hold the powerful to account. Our original videos undermine their narratives on a daily basis. Even our insistence on having fun infuriates them -- because we won’t bend the knee to political correctness.

One reason we stand apart is because we are not afraid to say we love America. We love her with every fiber of our being, and we think she's worth saving from today’s craziness.

Help us save her.

A second reason we stand out is the sheer number of honest responsible reporters we have helped train. We have trained so many solid reporters that they now hold prominent positions at publications across the political spectrum. Hear a rare reasonable voice at a place like CNN? There’s a good chance they were trained at Daily Caller. Same goes for the numerous Daily Caller alumni dominating the news coverage at outlets such as Fox News, Newsmax, Daily Wire and many others.

Simply put, America needs solid reporters fighting to tell the truth or we will never have honest elections or a fair system. We are working tirelessly to make that happen and we are making a difference.

Since 2010, The Daily Caller has grown immensely. We're in the halls of Congress. We're in the Oval Office. And we're in up to 20 million homes every single month. That's 20 million Americans like you who are impossible to ignore.

We can overcome the forces lined up against all of us. This is an important mission but we can’t do it unless you — the everyday Americans forgotten by the establishment — have our back.

Please consider becoming a Daily Caller Patriot today, and help us keep doing work that holds politicians, corporations and other leaders accountable. Help us thumb our noses at political correctness. Help us train a new generation of news reporters who will actually tell the truth. And help us remind Americans everywhere that there are millions of us who remain clear-eyed about our country's greatness.

In return for membership, Daily Caller Patriots will be able to read The Daily Caller without any of the ads that we have long used to support our mission. We know the ads drive you crazy. They drive us crazy too. But we need revenue to keep the fight going. If you join us, we will cut out the ads for you and put every Lincoln-headed cent we earn into amplifying our voice, training even more solid reporters, and giving you the ad-free experience and lightning fast website you deserve.

Patriots will also be eligible for Patriots Only content, newsletters, chats and live events with our reporters and editors. It's simple: welcome us into your lives, and we'll welcome you into ours.

We can save America together.

Become a Daily Caller Patriot today.

Signature

Neil Patel