US stock markets ended a short four-day week with losses, after an early rally gave way to doom and gloom, largely due to the eurozone’s sovereign debt crisis.
“There is a sense of exhaustion with the crisis that is very intense on the markets,” Natixis economist Evariste Lefeuvre said.
The Dow Jones Industrial Average fell 2.21 percent for the week to close at 10,992.13 on Friday. The broader S&P 500 sank 1.68 percent to close at 1,154.23, while the tech-heavy NASDAQ Composite fared better, dropping only 0.5 percent to 2,467.99.
“It’s an emotion-driven market right now,” Wedbush Morgan Securities managing director Michael James said.
“Europe continues to be just as big a driver of our equity market than anything happening domestically,” James said.
Fears of a possible double-dip recession in the US also shook the markets, with policy speeches by US President Barack Obama and Federal Reserve Chairman Ben Bernanke on Thursday failing to arrest the slide.
Bank stocks were hit especially hard as concerns over exposure to Europe’s debt crisis were added to fears of immense new legal costs stemming from the US’ subprime mortgage debacle.
Shares of JPMorgan Chase slumped 7.3 percent for the week, while Citigroup and Goldman Sachs were down 5.8 percent and 4.5 percent respectively.
The three lenders were among the 17 domestic and foreign banks that were slapped with costly lawsuits by US authorities late last week over losses on mortgage-backed securities.
If there was a ray of hope on the markets this week, it was technology stocks, which eked out gains as bargain-hunting investors snapped up their shares.
Apple, Intel and Amazon were all up by less than 1 percent for the week, despite the overall market downturn.
The week was bookended by the US Labor Day holiday on Monday — during which markets were closed — and poignant ceremonies on Friday to mark the 10th anniversary of the Sept. 11 attacks, which hit close to Wall Street.
In the week ahead, investors will be watching to see how Congress reacts to the details of Obama’s job-creation plan.
Opposition among Republicans in the House of Representatives is likely to be fierce, but there are hopes that at least some part of the US$447 billion plan can win Congressional approval.
Markets will also be keeping a close eye on policy moves in Europe. Finance ministers from the G7 group of wealthy countries are expected to discuss the eurozone’s debt crisis at a summit in France over the weekend.
“Right now, it is economic policy which matters: policy in the eurozone and in the United States, the passage or the counterattack against Obama’s plan,” Lefeuvre said.
Investors will also be keeping a close eye on the official US inflation rate to be released on Thursday.
A low inflation number will embolden those who argue that the Fed should launch a new round of quantitative easing to stimulate the ailing economy.
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