Wall Street enters the year-end holiday season this coming week with little to cheer about as the worst bear market in decades appears to be grinding on.
While some say stocks have been beaten down to cheap levels, investors remain fearful that the worst is not yet over, fretting over a possible collapse of the United States auto industry or more troubles for major banks.
As a result, the cheer normally expected with the Thanksgiving Day holiday on Thursday that traditionally opens the year-end holiday is noticeably absent.
The Dow Jones Industrial Average and Nasdaq hit their lowest levels in more than five years in the past week and the broad-market Standard & Poor’s 500 fell to its weakest since 1997.
Although the market ended on Friday on a high note, with a big rally inspired by news that president-elect Barack Obama had chosen New York Federal Reserve chief Timothy Geithner as Treasury secretary, the losses for the week were still staggering.
In the week to Friday, Dow index tumbled 5,31% to 8 046,42.
The tech-heavy Nasdaq sank 8,74% to 1 384,35 and the broad-market Standard & Poor’s 500 dropped 8,39% to 800,03.
The past week was filled with glum economic news. United States unemployment claims surged to a 16-year high while housing starts fell to the lowest levels on record.
Consumer prices fell at a steep rate, raising worries about deflation, while the Federal Reserve slashed its economic outlook, acknowledging a likely recession well into next year.
Citigroup shares plunged by about 50%, raising fears about the survival of one the US banking titans, and an anticipated bailout of the US auto sector was postponed in Congress, raising the spectre of collapse.
Yves Smith, analyst with the financial website Naked Capitalism, said a collapse of General Motors (GM) would be “a disaster of colossal proportions.”
“GM would be a massive bankruptcy. It is doubtful whether it could obtain enough [debtor] financing, which means it might be forced into a partial, perhaps a full liquidation. The ramifications are nightmarish.”
The stock market reflected those worries.
“Stocks are down roughly 50% from their highs in the US, Canada and Europe, representing the worst bear market in the post-war period,” said Sherry Cooper, chief economist at BMO Capital Markets.
“No reasonable person is calling a bottom in stocks or the economy right now. Developed and emerging-market economies are both moving deeper into recession.”
Fred Dickson, market strategist at DA Davidson, said the market is “massively oversold”, but that “investors continue to hold lots of cash watching and waiting for signs of stabilisation in the stock market before committing some of it to new positions.”
“Evidence of a huge and growing global recession has caused investors to reassess overall the market valuation level,” he said.
Bob Dickey at RBC Wealth Management said that even if stocks have not yet hit bottom, this may not be far off, and urged investors to hang on to their shares.
“After such a broad and deep drubbing it’s likely that when a rally comes it will also be equally dramatic on the upside so selling now could be one of the worst exercises in poor market timing that an investor could do,” he said. — AFP