Global Sell-Off Takes a Toll on U.S. Equities

By Jennifer Yousfi
Managing Editor
Money Morning

U.S. markets tumbled Friday as a global sell-off spread from Asia and Europe, as fears of a worldwide recession intensified.

At the New York close on Friday, the blue-chip Dow Jones Industrial Average Index had plunged 312.62 points (-3.6%), to trade at 8,378.63. The tech-laden Nasdaq Composite Index shed 51.88 points (-3.23%), to reach 1,562.03. And the broader Standard & Poor’s 500 Index dropped 31.45 points (-3.46%), to hit 876.66.

 “It's a bear market on steroids,” David King, a money manager at Putnam Investments, who helps manage about $137 billion, told Bloomberg Television. “It's very accelerated by the pace of financial markets today.”

Prior to the New York opening bell, pre-market traded futures for all three major U.S. indices fell their maximum allowed daily limit, causing safety measures to kick in and halt futures trading until the market’s open. Dow futures crashed 550 points, or 6.27%, to 8,224. The S&P 500’s futures index plunged 60 points, or 6.56%, to 855.20, and Nasdaq futures skidded 85 points, or 6.20%, to 1,175.75.

But despite the bleak picture futures painted, the U.S. markets recovered from the day’s deeper lows to close higher than originally indicated.

Commodities tumbled on fears of demand destruction from weak economic growth. Gold traded down to $681.00 an ounce from an opening level of $713.30. Oil also declined despite production cuts from the Organization of Petroleum Exporting Countries (OPEC). [For a related story in Money Morning on OPEC’s production cut, please click here.]

Selling is across all asset classes,” Robin Bhar, a commodities analyst at Calyon in London, told Bloomberg News. “A month ago we were on the edge of a cliff and now we're in freefall.”

In overseas markets, Japan’s Nikkei Index had an 811.90-point decline to close at 7,649.08, its lowest level in over five years. Hong Kong’s blue-chip Hang Seng Index plummeted 1,142.11 points to close at 12,618.40, its lowest level since August 2004.

"The market is pretty desperate and at a loss. Four days running of big losses, though the turnover is quite low," Howard Gorges, vice chairman South China Securities, told Reuters, speaking of the Hong Kong markets. The Hang Seng Index has dropped 55% so far this year.

"People are just standing aside. These are dangerous markets to play around with. That's the main reason for getting into cash," Gorges said.

In Europe, major indices sunk on news that the United Kingdom’s gross domestic product contracted more than expected with a decline of 0.5% in the third quarter.

We are obviously not sure exactly how this whole situation will develop. We’ve had some quite deep and severe recessions in the UK before, and hopefully we can avoid that sort of situation in the current circumstances, but the risks of that have increased,” Andrew Sentance, a member of the Bank of England’s rate-setting monetary policy committee, told BBC Radio Leeds.

The FTSEurofirst 300 Index of blue-chip European shares skidded 4.9% to close at 829.73 points, its lowest closing level since May 2003, Reuters reported.

The Paris-based CAC40, London’s FTSE 100, Madrid’s IBEX 35 and the Frankfurt-based DAX all posted triple-digit losses.

At the New York close, the dollar had gained ground against the euro [up 2.46%] and the pound sterling [up 2.02%], but lost ground against the yen [down 2.94%].

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