Stocks take biggest fall in 5 weeks
Published 12:01 am Friday, September 23, 2011
NEW YORK — U.S. stocks were thrashed Thursday, with the major indexes taking their hardest single-day hit in five weeks, amid widespread selling of stocks and commodities on escalated fears about the global economy.
“This is a class example of indiscriminate selling to raise cash, it’s not a selective process here,” said Art Hogan, head of product strategy, equity research at Lazard Capital Markets.
After falling almost 528 points during the session, the Dow Jones industrial average finished with a drop of 391.01 points, or 3.5 percent, at 10,733.83.
The battering left the Dow nearly 14 points above its lowest close for the year and was its steepest drop since Aug. 18.
All 30 of the blue-chip index’s components lost ground, with United Technologies Corp. hardest hit, its shares tumbling 8.8 percent.
FedEx Corp. added to the bearish tilt, its shares falling 8.2 percent after the shipper cut its 2011 profit outlook and its CEO told a conference call that he expected sluggish growth would continue, although he does not expect the U.S. to fall back into a recession.
The negative sentiment taking hold among investors is “driven by the bank runs in Europe, and some of the European banks are rumored to be looking in the Middle East for capital; it’s like a replay of 2008 for some of the U.S. banks,” said Charlie Smith, chief investment officer at Fort Pitt Capital.
The Financial Times reported that the European Union was speeding up the recapitalization of 16 EU banks that were close to failing recent stress tests.
“When you talk about bank recapitalizing and going to places like Dubai to do it, everything echoes back to 2008 except economic fundamentals,” said Lazard’s Hogan.
Smith also pointed to Europe’s solvency issues, saying Greece is not a major issue, given “it’s only 2 percent of the euro zone, but Italy would be.”
U.S. stocks were part of a global stock selloff as investors also reacted to the Federal Reserve’s statement late Wednesday. The central bank warned of risks to the economic outlook and unveiled a bond-swap program, seen as something that would have minimal sway in revitalizing growth.
Technical issues are also in play, according to Phil Orlando, equity market strategist at Federated Investors. “We need to successfully retest 1,100 on the S&P. We’re getting close,” he said.
The market’s reaction to the Fed was in large part “buy the rumor and sell the news” trade, as the central bank’s stance that it would replace short-term debt with longer-term Treasury bonds was widely anticipated, Orlando said.
