The stock market provided a rude shock for US President Barack Obama, displaying renewed volatility as investors grew increasingly cautious about prospects for an economic recovery.
In the holiday-shortened week to Friday, the blue-chip Dow Jones Industrial Average fell 2.46 percent to 8,077.56.
The technology-heavy NASDAQ lost 2.4 percent to 1,477.29, while the broad-market Standard & Poor’s 500 shed 2.14 percent to 831.95.
Stocks plunged as Obama assumed the presidency on Tuesday, with fearing growing about the global banking sector and investors remaining uneasy about the new administration’s ability to spark a recovery from the year-old recession.
Citigroup chief economist Lewis Alexander said the economy was caught in a downward cycle that was becoming self-reinforcing.
“The outlook for the global economy continues to deteriorate,” he said. “A significant contraction in international trade is helping to propagate these shocks around the globe ... There are scant signs that the momentum of this negative cycle is waning.”
Kevin Giddis, analyst at Morgan Keegan, said the 44th US president faced “an economy that has too much personal debt, too little personal savings and too few jobs.”
“It is also an economy that has rotting homes and mortgages attached to much lower stock and bond prices,” Giddis said. “Do you really believe that the new administration will be able to just simply float US$850 billion back into consumers’ hands and make it all better? This will likely take all of 2009 and maybe even some of 2010 to right the ship.”
The impact of the crisis became evident in corporate earnings over the past week, with software giant Microsoft announcing unprecedented cuts of up to 5,000 jobs while warning that the global economy and technology spending had “slowed beyond our expectations.”
“The financial dark cloud has extended over the entire stock market, although it doesn’t appear as dark as it did last fall when the credit markets seized up” last year, Fred Dickson of DA Davidson & Co said.
Still, he said the market was deeply “oversold” and may have already priced in the worst likely economic scenario.
“While we don’t see a near-term solution to the huge problems facing the banking system, the flow of money into the economy through the credit markets should provide some stimulus to get the economy moving forward, albeit at a very slow pace,” he said.
Al Goldman at Wachovia Securities said the change at the White House could help the stock market turn the corner.
“How President Obama will handle the inevitable international problems and terrorism are not able to be known at this time, but he enters office on a wave of optimism,” Goldman said. “Optimism is another word for faith, and it is critical to the future of the stock market.”
Gregory Drahuschak at Janney Montgomery Scott said that if the market follows the pattern of the Great Depression, it could see a sharp snapback.
He said the Dow index rallied 77 percent in 1933 from its January lows to June of that year.
“Many comparisons are being made to the situation President Obama confronts now, relative to what Roosevelt faced in 1933,” he said.