U.S. Stocks Drop Sharply, Following Europe and Asia

December 1, 2008

After five days of gains, a quick 300-point decline was to be expected.

Wall Street started a new week on Monday with a steep correction, as the Dow Jones industrial average tumbled more than 350 points in the first half hour of trading. The Standard & Poor’s 500-stock index fared even worse, shedding 4.6 percent.

There was a time when such sharp losses would strike terror into the minds of market watchers. But analysts said the drop was expected as investors sought to bank their profits from the last five days of big gains.

Last week’s 12 percent rally in the S.& P. marked the longest winning streak in months and a hopeful sign for investors seeking a temporary reprieve to the current tumult.

“We’re giving back some of the appreciation in equities that we gained in the last few weeks,” said Robert Talbut, a fund manager at Royal London Asset Management.

The decline on Wall Street came after stocks in Europe and most of Asia moved lower, as investors re-focused their attention on a gloomy economic outlook.

Benchmark indexes in Paris and Frankfurt were down more than 4 percent, and London’s FTSE-100 dipped 3.6 percent. The declines were minor compared with the 13 percent increase that European stocks enjoyed last week.

“I think in terms of valuations there are some good deals starting to appear,” Mr. Talbut said. “But valuations are never enough in themselves.”

Any serious market recovery would require a determined response from global governments, he said, but investors have lots of questions about how the policy measures that have already been announced will work.

Investors were also troubled by mounting evidence that consumer spending in the United States would fall sharply this holiday shopping season, choking off one of the prime fuels of American economic growth. Retailers received more business than expected over the Thanksgiving shopping weekend, but the steep discounts they used to lure customers may undermine profits.

ShopperTrak said Black Friday sales were 3 percent higher than the year before.

Asian stocks ended mostly lower. The Tokyo benchmark Nikkei 225 stock average fell 1.4 percent, while the S&P/ASX 200 in Sydney fell 1.6 percent.

The Kospi index in Seoul declined 1.6 percent. But the Hang Seng index in Hong Kong rose 1.6 percent, and the Shanghai Stock Exchange composite index rose 1.3 percent.

United States government debt was strong amid the poor economic outlook and expectations that the Federal Reserve will cut interest rates again soon.

The yield on the two-year Treasury note, which moves in the opposite direction of the price, fell to a record just below 0.95 percent, while the yield on the 10-year note fell to 2.86 percent, the lowest on record.

Investors expect the Bank of England, the Reserve Bank of Australia and the European Central Bank all to cut interest rates this week amid evidence that inflation is easing and growth flagging. The Organization for Economic Cooperation and Development projected last week that the economies of its 30 member countries would decline in 2009 by 0.4 percent over all, after growth of 1.4 percent this year.

“Evidence continues to build suggesting that these central banks have further aggressive monetary easing to undertake in order to stem the risks of a dramatic shift in price expectations going forward,” Derek Halpenny, a foreign exchange strategist at Mitsubishi UFJ in London, wrote in a note to investors.

The Federal Reserve’s main rate is targeted at 1 percent, currently, though the effective rate in the market is 0.5 percent, because of the enormous quantity of cash that the Fed has pumped into the market to keep foundering financial institutions afloat.

Crude oil futures for January delivery fell $2.31 to $52.13 a barrel in premarket trading in New York.

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3 Responses to “U.S. Stocks Drop Sharply, Following Europe and Asia”

  1. Lewis Says:

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    China Expert, Jim Trippon, has been featured on CNBS, MSNBC, CNN, Fox Business News and many television/radio programs worldwide. Fox Business News’ Neil Cavuto, recently called Jim Trippon “the only person that could truly be called a China Stock Guru.”

    China Stock Digest would be interested in exchanging blog posts or having Jim Trippon be a featured blogger on your site.

    If interested, please contact Lewis at lsouthwick@chinastockdigest.com

  2. FastSwings Says:

    This is a good 50% correction from the high reached on Friday. If the market begins to move higher again on Tuesday than today could have been a setup for a W bottom formation.


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    commentary on few common issues, The site style is
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