It was a brutal week for US stock markets, as investors sold-off shares on signs that growth in the world’s largest economy was slowing.
The Dow Jones Industrial Average sank 1.4 percent by Friday, posting a sixth straight week of losses for the first time since October 2002.
The NASDAQ fell 2.9 percent and the S&P 500 fell 2 percent.
Most of the declines early in the week appeared to be a hangover from poor jobs data the week before, which showed unemployment rising to 9.1 percent.
“The markets are reacting to an economy shifting to a lower gear, but also seeing influential indicators such as commodity prices and bond yields decline,” Sam Stovall of Standard & Poor’s said. “It’s causing investors to wonder if global economic growth will do even more than simply shift to lower gear, meaning it could be pointing to another recession.”
That ill feeling was compounded on Tuesday when US Federal Reserve Chairman Ben Bernanke told an audience that the weak housing sector was holding back the recovery and that job creation was in a “far from normal” slump.
In his first public comments on the economy in nearly a month, he gave no hints that the US Federal Reserve was ready to extend the US$600 billion monetary stimulus program that is to end this month.
Instead, he said, “accomodative monetary policies are still needed,” apparently a reference to keeping interest rates at the current record-low level.
On Wednesday the news just got worse as ratings agency Fitch warned that the US risks losing its top credit rating if it fails to raise its debt ceiling to avoid defaulting on loans.
The third of the three big ratings houses to issue such a warning, Fitch said the country needed to beat the Aug. 2 deadline for upping its US$14.29 trillion borrowing ceiling to avoid seeing its bonds lose their top-grade AAA rating.
The Dow ended the week down 172.45 points to 11,951.91. The NASDAQ fell 41.14 points to 2,643.73. The S&P 500 fell to 1,270.98 points, down 18.02 points.
In the week ahead, Wall Street could rack up a seventh consecutive week of losses as the likelihood of more poor economic data and other disconcerting signals outweigh any thoughts that stocks are cheap.
After closing at its highest level in nearly three years on April 29, the S&P 500 has tumbled nearly 7 percent on the back of a barrage of soft economic data, sparking the debate over whether the economy is headed for a double-dip or has merely hit a soft patch in its recovery.
Another week of selling will mark the longest stretch of weekly losses for the index since 2001.
Red flags, including ugliness in the junk bond market, options activity and the ease with which support levels have been broken suggest more selling ahead.
“You have to be realistic. You’ve got to have some sort of correction to go into this marketplace just for the healthiness of the market,” said Cliff Draughn, president and chief investment officer at Excelsia Investment Advisors in Savannah, Georgia.
Stocks have also been easily passing through technical support levels, with the S&P 500 most recently taking out the April 18 low of 1,294.70, leaving analysts to eye the 1,250 level as the next area of support.
On top of that, data expected for next week, including the Producer Price Index, the Consumer Price Index, last month’s retail sales, manufacturing surveys for New York and Philadelphia as well as the index of leading indicators of economic activity are forecast to mostly show a struggling economy.