Wall Street enters the year-end holiday season this coming week with little to cheer about as the worst bear market in decades appears to be grinding on.
While some say stocks have been beaten down to cheap levels, investors remain fearful that the worst is not yet over, fretting over a possible collapse of the US auto industry or more troubles for major banks.
As a result, the cheer normally expected with the US Thanksgiving Day holiday on Thursday that traditionally opens the year-end holiday is noticeably absent.
The Dow Jones Industrial Average and NASDAQ hit their lowest levels in more than five years in the past week and the broad-market Standard & Poor’s 500 fell to its weakest since 1997.
Although the market ended Friday on a high note, with a big rally inspired by news that US president-elect Barack Obama had chosen New York Federal Reserve president Timothy Geithner as Treasury secretary, the losses for the week were still staggering.
In the week to Friday, Dow index tumbled 5.31 percent to 8,046.42. The tech-heavy NASDAQ sank 8.74 percent to 1,384.35 and the broad-market Standard & Poor’s 500 dropped 8.39 percent to 800.03.
The past week was filled with glum economic news. US unemployment claims surged to a 16-year high while housing starts fell to the lowest levels on record.
Consumer prices fell at a steep rate, raising worries about deflation, while the Federal Reserve slashed its economic outlook, acknowledging a likely recession well into next year.
Citigroup shares plunged by some 50 percent, raising fears about the survival of one the US banking titans, and an anticipated bailout of the US auto sector was postponed in Congress, raising the specter of collapse.
Yves Smith, analyst with the financial Web site Naked Capitalism, said a collapse of General Motors (GM) would be “a disaster of colossal proportions.”
“GM would be a massive bankruptcy. It is doubtful whether it could obtain enough [debtor] financing, which means it might be forced into a partial, perhaps a full liquidation. The ramifications are nightmarish,” Smith said.
The stock market reflected those worries.
“Stocks are down roughly 50 percent from their highs in the US, Canada and Europe, representing the worst bear market in the postwar period,” said Sherry Cooper, chief economist at BMO Capital Markets.
In a sign of the panic in the past week, the bond market soared to historic highs.
The yield on the 10-year Treasury bond fell to 3.167 percent from 3.750 percent a week earlier, and then the 30-year Treasury bond tumbled to 3.663 percent against 4.230 percent. The lower yields reflect higher bond prices.
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