Buyers Leave the Market on Growing Fears of Another U.S. Recession

Wall Street Sinks for Fourth Straight Week

The Dow Jones industrial average fell 172.93 points, or 1.57 percent, to end at 10,817.65.

August 18, 2011

Reuters - Wall Street ended a fourth week of losses on a down note on Friday as most buyers left the market before the weekend on growing fears of another U.S. recession and destabilization in Europe's financial system.

Investors already reeling from big losses in growth stocks were thumped by a dismal outlook from Hewlett-Packard, which dropped nearly 20 percent, its worst day since the stock-market crash of 1987.

It was the latest discouraging event in a month full of bad surprises ranging from the U.S. credit rating downgrade to a sharp slowdown in world growth. The S&P has lost 13.1 percent so far this month -- on track for its worst month since October 2008.

"What I'm seeing right now is a basically a crisis of confidence, more so than an economic crisis or financial crisis necessarily at this stage," said Natalie Trunow, chief investment officer of equities at Calvert Investment Management in Bethesda, Maryland, which manages about $14.8 billion.

Hewlett-Packard's shares tumbled 19.9 percent to a six-year closing low at $23.60 and were the biggest drag on the Dow, a day after the company said it may spin off its PC business, the biggest in the world, and lowered its outlook.

The losses follow a day of sharp declines. At the session lows on Thursday, the Dow was down more than 500 points, while the S&P 500 and the Nasdaq each shed more than 5 percent at the day's worst.

Worries that the United States and the global economy may be headed for another recession have unnerved investors in recent weeks. Thursday marked the sixth time in the past two weeks that the S&P 500 has moved 4 percent or more.

Technology stocks bore the brunt of the losses among the Dow components, with H-P, International Business Machines Corp, Intel Corp, and Microsoft Corp among the biggest drags on the blue-chip average. IBM shares fell 3.8 percent to $157.54, while Intel dropped 2.9 percent to $19.19, and Microsoft lost 2.5 percent to $24.05.

"I think it's more of a drift than any real selling here," said Frank Gretz, market analyst and technician for Shields & Co in New York. "It's more common to see a drift down with people more fearful about the weekend ... Who's going to buy before a weekend with all the bad news around?"

The Dow Jones industrial average fell 172.93 points, or 1.57 percent, to end at 10,817.65. The Standard & Poor's 500 Index dropped 17.12 points, or 1.50 percent, to 1,123.53. The Nasdaq Composite Index slid 38.59 points, or 1.62 percent, to close at 2,341.84.

S&P OFF NEAR 11 PCT FOR 2011

For the week, the Dow ended down 4 percent, the S&P 500 dropped 4.7 percent and the Nasdaq lost 6.6 percent.

The S&P 500 fell below 1,130, a key resistance level during last summer that is becoming strong support. Analysts see the next support at 1,100.

"It's been a difficult week and confidence that this is just a soft patch or slowdown is declining every day, so I just think more investors are just concluding it's not a good idea to own stocks over the weekend," said Hugh Johnson, chief investment officer of Hugh Johnson Advisors LLC in Albany, New York.

Google Inc lost 2.8 percent to $490.92 and helped drag on the Nasdaq.

The S&P 500 is down 17.6 percent from its April 29 closing high, edging close to bear market territory. For the year, the S&P is down 10.7 percent.

Wall Street typically defines a correction as a drop of 10 percent from a recent peak, while a slide of 20 percent from a recent high is a bear market.

Roughly three stocks declined for every one that advanced on both the New York Stock Exchange and the Nasdaq, with a volume of 9.87 billion shares traded on the two exchanges and the American Stock Exchange.

U.S. Stock-Index Futures Slide Before Reports

August 18, 2011

Bloomberg - U.S. stock futures sank as investors awaited reports that may show jobless claims rose and leading economic indicators fell and Sweden’s financial regulator said banks are unprepared for a freeze in money markets.

JPMorgan Chase & Co. (JPM) and Morgan Stanley fell in early New York trading as the Wall Street Journal also said U.S. regulators are stepping up scrutiny of European banks’ local operations on concern that the region’s sovereign debt crisis may lead to funding problems. NetApp Inc. (NTAP) tumbled 14 percent after the maker of data-storage products reported first-quarter earnings that missed analyst estimates.

Standard & Poor’s 500 Index futures expiring in September slid 1.7 percent to 1,169.4 at 7:19 a.m. in New York. Dow Jones Industrial Average futures retreated 167 points, or 1.5 percent, to 11,214.

“We still have a lot of questions on the economy,” said Guillaume Duchesne, an equity strategist at BGL BNP Paribas SA in Luxembourg. “Markets are worried and stocks linked to the economy are strongly penalized.”

The S&P 500 rose as much as 28 percent after Federal Reserve Chairman Ben S. Bernanke foreshadowed on Aug. 27 of last year a second round of so-called quantitative easing. The central bank finished the program of asset purchases at the end of June. Bernanke may announce policy intentions at a conference in Jackson Hole, Wyoming, on Aug. 26.

‘Remain Uncertain’

“Economic data hasn’t been that great,” said Louis de Fels, a Paris-based money manager at Raymond James Asset Management International, which oversees $30 billion worldwide. “Recovery isn’t as strong as expected. The market will remain uncertain until Jackson Hole.”

Most U.S. stocks declined yesterday, wiping out an earlier advance, as Dell Inc. forecast weaker sales and two Federal Reserve officials expressed concern about the amount of stimulus being applied to the economy. The S&P 500 has fallen 12 percent from a three-year high on April 29 on concern about Europe’s debt crisis and an economic slowdown.

A report at 8:30 a.m. in Washington may show the number of new U.S. job seekers applying for unemployment insurance rose by 5,000 to 400,000 in the week ending Aug. 13, according to a Bloomberg survey of economists.

Separate releases at 10 a.m. may show that sales of previously owned houses climbed to a 4.9 million annual pace in July from a seven-month low in June and the Conference Board’s index of leading U.S. indicators grew 0.2 percent last month after a 0.3 percent gain the prior period.

Philadelphia Fed

Economists also forecast the Federal Reserve Bank of Philadelphia’s general economic index declined to 2 this month from 3.2 in July. Readings greater than zero signal expansion in the area covering eastern Pennsylvania, southern New Jersey and Delaware.

JPMorgan, the second-biggest U.S. bank by assets, lost 1.9 percent to $35.88 in early New York trading. Morgan Stanley (MS) slid 0.6 percent to $16.90.

The Journal reported that U.S. regulators are stepping up scrutiny of local operations for Europe’s largest banks on concern that the region’s sovereign debt crisis may lead to funding problems. The Federal Reserve Bank of New York has been holding talks with the lenders and sought information about their access to funds to maintain operations in the U.S., the newspaper said, citing people it didn’t identify.

Swedish banks must do more to prepare for a deterioration in Europe’s debt crisis that could freeze interbank markets and cut off funding, said Lars Frisell, chief economist at the country’s financial regulator.

‘Everything Will Freeze’

“It won’t take much for the interbank market to collapse,” Frisell said yesterday in an interview in Stockholm. “It’s not that serious at the moment but it feels like it could very easily become that way and that everything will freeze.”

NetApp sank 14 percent to $35.90 in Germany. The data- management company reported first-quarter earnings excluding some items of 55 cents a share, less than the average analyst estimate of 56 cents a share. The stock was cut to “market perform” from “outperform” at William Blair & Co.

Gap Inc. (GPS), the largest U.S. apparel chain, and Hewlett- Packard Co., the world’s biggest computer maker, are among companies scheduled to report earnings today.