Wall Street’s mood has swung back to morose amid resurgent crude oil prices and fresh worries that the US economy’s woes are deeper than expected.
The dollar’s rebound has stalled and crude oil is back at record highs amid renewed fears of a Middle East conflict.
On the economic front, US home foreclosures are rising along with the unemployment rate, which jumped half a point to 5.5 percent last month.
A horrible month for auto sales — overall industry sales were down 10.7 percent last month — stoked fears that the economy may be in a downward spiral, with consumers shunning big purchases, which hurts manufacturing and leads to more job cuts.
“In the past few months it appears that the US consumer finally reached a tipping point. Rising oil prices have helped push consumer confidence to deep recession levels,” said Ethan Harris, economist at Lehman Brothers.
In the coming week, the market must face up to fresh data on retail sales that will show the health of US consumers, and reports on the US trade balance and inflation.
In the week to Friday, the Dow Jones Industrial Average of 30 blue-chip shares slid 3.39 percent to 12,209.81, with most of the losses coming on the heels of Friday’s shock labor report and surge in crude oil to above US$138 a barrel.
The Standard & Poor’s 500 broad-market index lost 2.83 percent to 1,360.68 and the tech-heavy NASDAQ composite retreated 1.91 percent on the week to 2,474.56.
The Dow is now off 7.95 percent for the year while the S&P is lower by 7.33 percent and the NASDAQ 6.7 percent.
Diane Swonk, chief economist of Mesirow Financial, said the economy remains mired in a sluggish pattern even if it may not technically be a recession.
“The economy is not expected to grow fast enough to absorb the influx of new workers to the labor force and the unemployment rate is expected to continue to rise,” she said, adding that the situation is closer to what economists term a “growth recession.”
“The economy is expected to continue skirting a statistical recession, but that doesn’t mean times won’t be tough for a large cross section of the population and businesses. Any gains that we do see in response to tax rebates and monetary stimulus over the summer, in particular, are not expected to do much to boost consumer or business confidence ahead of November [presidential] elections,” she said.
Al Goldman at AG Edwards said that despite the gloomy outlook, the stock market could muddle through, arguing that the best gains often come when things appear bleakest.
“The S&P 500 has not yet been able to break out of the top of its 1,420 to 1,320 trading range, but we believe it will,” he said.
“We continue to believe the market is going through an emotional metamorphosis as it transitions from bear to bull ... it is a tough time for most investors to buy stocks because most bottoms are made when the mood is very gloomy,” he said.
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