Dow plunges 512 points: Here's what's bothering the stock market
The Dow suffered its worst day since December 2008, when the US was sliding into recession. The flight to bonds was so extreme that stock market investors were paying the US to hold their money.
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Although the stock market can be a predictor of economic slack, it is not always accurate, notes Sam Stovall, chief investment strategist at Standard & Poor’s in New York. “There have been 54 market declines of 5 percent or more since World War II but only 12 recessions,” says Mr. Stovall.Skip to next paragraph
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“Why is this different?” he asks. “Because the market decline has been accompanied by worse than expected numbers in GDP, ISM [Institute for Supply Management], factory orders, and jobs,” he answers.
Stovall says Standard & Poor’s, which had thought there was only a 30 percent probability of a recession, now puts the probability of a recession at between 30 and 50 percent. Often, the economic fundamentals lag the stock market by seven to eight months, he notes.
In yet another indication that the markets are expecting lower demand in the months ahead, the price of oil fell to $86.53 a barrel, the lowest level since February. Gold, which had been soaring during the past two weeks, also fell by $14.30 an ounce.
Friday morning, US investors will be watching to see what happens in Europe. On Thursday, banking regulators in Europe indicated that the European Central Bank (ECB) had hit its own internal funding limit.
After the bank indicated it might seek additional money from its member states, some, including Finland, the Netherlands, and Germany, pushed back, concerned that they might lose their AAA credit rating, says Mr. Dickson.
“The euro sold off and that spilled over to the US market,” he says. “Now all of a sudden the stock market is readjusting global valuations to a weaker economy spilling from Europe to China to the US.”