US stocks were sucked deeply into global economic downdrafts this week, as growth stalled across major economies and data from four continents painted an increasingly grim picture for the rest of the year.
A big loss on Friday sent the Dow lower than it started the year for the first time, while other major indices were also near to giving up hard-wrought gains since January.
The blue chips of the Dow ended the holiday-shortened week at 12,118.57, down 3.3 percent for the four days and 0.81 percent off for the year.
The broader S&P 500 gave up 3 percent in the week to finish at 1,278.04, while the NASDAQ lost 3.2 percent, ending at 2,747.48.
While Greece, Spain and the return to crisis of the eurozone was a constant dark cloud over trade, more data showing China’s slowdown, and figures confirming that the US remained stuck in its sluggish growth mode, were what really turned US investors into bears.
On Friday, industrial activity indices in both countries showed slowing and US jobs data for last month came in as a real disappointment, with new jobs creation of just 69,000 positions, less than half what was expected.
“It’s an ugly day for US stocks, as a disappointingly weak report on May payrolls has thoroughly rattled investors,” Elizabeth Harrow of Schaeffer’s Investment Research said.
In addition, investors’ hopes for a sign that China would move to stimulate growth were dashed when the government signaled that no such plan was in the works.
Stocks sensitive to spending by US and Chinese consumers, and industries, took solid hits during the week: commercial banks, fast food franchisers like Yum Brands and McDonald’s, heavy equipment vendor Caterpillar and even Apple, the market leader by size.
The bad news also sent crude oil prices plunging and US government bond yields to new lows.
“I don’t want to say we are at the panic stage, but investors are hard on selling off,” Peter Cardillo of Rockwell Global Capital said.
US investors were also still struggling with the debacle of Facebook’s May 18 initial public offering (IPO). On Friday, the stock closed at US$27.72, 27 percent below the IPO price of US$38. At least nine class action lawsuits have been filed against Facebook, its underwriters and the NASDAQ over how the offering was handled.
Economists debated the meaning of the week’s data but most said that the negative mood in the markets was excessive.
“The increase in [US] Treasury prices and the decline in crude oil prices likely reflect the market’s ever-growing pessimistic view that the US economic recovery is stalling along with eurozone weakness,” Wells Fargo Securities said.
“While weaker-than-expected economic data may give merit to this argument, we contend there is likely a bit of noise in the data and continue to expect moderate economic growth,” the bank added.
The coming week will be lighter on data, though eyes will be on US Federal Reserve Chairman Ben Bernanke for any signal the central bank might be more open to add stimulus to the economy after demurring since the beginning of the year.
Attention will also focus on developments in China, the world’s second-largest economy, and the eurozone.
“The pervasive gloom is almost certain to provide a platform for bears to promote the possibility of a double-dip recession, further declines in home prices, global depression or similar enticing topics. Expect the bearish rhetoric to pick up sharply,” Dick Green of Briefing.com said.