Recession scare sparks new plunge in US stocks
Posted: 19 August 2011 0502 hrs
NEW YORK: New worries about a second recession in the United States and Europe, prompted by an investment bank report, sent US stocks into a new sharp fall on Thursday.
The Dow Jones Industrial Average closed down 419.63 points (3.68 percent) to 10,990.58, following an earlier rout on Europe's bourses.
The broader S&P 500 sank 53.23 points (4.46 percent) to 1,140.65, while the tech-heavy Nasdaq Composite was hit harder by selling, tumbling 131.05 (5.22 percent) to 2,380.43.
The spark to the new fall was a Morgan Stanley report warning that global growth was slowing and that the United States and Europe were on the precipice of plunging into a new recession, two years after the end of the last one.
"A negative feedback loop between weak growth and soggy asset markets now appears to be in the making in Europe and the US. This should be aggravated by the prospect of fiscal tightening in the US and Europe," it said.
The report was reinforced by a handful of weekly and monthly data releases in the US that showed no improvement on jobs, falling housing sales, rising inflation, and deteriorating manufacturing conditions in the East Coast region centred on Philadelphia.
"The general consensus behind the decline seems to be concerns regarding global growth prospects, though the lingering eurozone debt crisis certainly remains on the minds of investors," said David Campione of Briefing.com.
There was also a run on bank shares, driven in part by a Wall Street Journal report that said US regulators were examining the positions of US units of Europe's big banks, with concerns about their possible exposure to eurozone debt problems.
Bank of America lost 6.0 percent, Citigroup fell 6.3 percent and Wells Fargo shed 4.7 percent.
The Nasdaq was pulled down by an 8.3 percent drop in Oracle and a 5.4 percent fall in Google.
Hewlett-Packard, which said it was considering spinning off its personal computer business and confirmed that it was negotiating to buy British enterprise software firm Autonomy, fell 6.0 percent.
The sell-offs in the US and Europe sparked a new surge in bond prices, pushing the US 10-year Treasury down at one point in trade to an all-time record low yield of 1.974 percent, breaking the record of 2.007 percent set on December 18, 2008, at the height of the US recession.
By the end of the day, the 10-year Treasury yield was at 2.07 percent, compared to 2.17 percent late Wednesday, while the 30-year yield was at 3.42 percent, down from 3.57 percent.
Bond prices and yields move in opposite directions.
Sounds like a new recession is coming? Time to short stocks, huh?