Wall Street crashes amid market 'temper tantrum over Europe'
Wall Street investor sentiment over European debt problems and an unexpected spike in unemployment claims drove the market downward.
Corporate earnings are coming in strong. The Federal Reserve says the economy is still on its recovery path. But, investors are having none of it.Skip to next paragraph
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On Thursday, even from the opening bell, the market acted as if a dark cloud had descended on Wall Street. And, throughout the day, stocks remained under pressure.
An afternoon rally fizzled and the Dow Jones Industrial Average finished the day down 376.36 to close at 10,068.01 off 3.6 percent for the day. That was the largest percentage drop since March 5, 2009.
Indeed, investors appeared to be focused on events across the Atlantic where financial regulators struggled to find the right formula for convincing investors that sovereign debt owed by countries such as Greece would be repaid. But instead of being assuaged, investors fretted that unless more is done to shore-up European economies there could be a new version of the 2008 Lehman Brothers credit market meltdown.
Their fears were somewhat justified when Federal Reserve governor Daniel Tarullo, testifying Thursday before a House subcommittee, “the European sovereign debt problems are a potentially serious setback.”
And, he said, “One avenue through which financial turmoil in Europe might affect the US economy is by weakening the asset quality and capital positions of US financial institutions.”
The US stock market was not the only market affected by the gloom. Oil prices fell over $2 a barrel, gold was down over $10 per ounce, and copper prices, reflecting worries about the world economy, dropped to their lowest level in over three months.
The tone on Wall Street was not helped, either, when the government reported new claims for unemployment climbed by 25,000 last week. Wall Street had been expecting a drop of 4,000.
“The number kind of jumped out of the blue after all the indicators seemed to be showing that the jobs market seems to be improving,” says Robert Brusca of Fact & Opinion Economics in New York.