Fear's a slippery slope for stocks
— -- The financial crisis is showing no signs of ending — and could even be accelerating — as unrelenting fears of a worldwide credit freeze have stocks in the grasp of one of the worst downdrafts in decades.
Capping off a staggering seven straight sessions of almost daily triple-digit declines, the Dow Jones industrial average on Thursday skidded 679 points in a late plunge to 8579 that dropped it below 9000 and left it at its lowest in more than five years.
There is no shortage of statistics to quantify the financial pain. The Dow, off 39.4% from its high exactly a year ago Thursday, has now exceeded its drop in the 2000-2002 bear market. The broader Standard & Poor's 500 index, down 41.9% from its high, has exceeded the average 31.5% drop in post-World War II bear markets and is closing in on its 49.1% fall in the last bear market. The S&P is on track for its worst year since 1931. And the Dow's 23.0% drop in nine trading days since the House of Representatives' initial "no" vote on the bailout equals the drop in the Oct. 19, 1987, stock market crash.
The reason for the speed of the plunge: "Fear," says Hugh Johnson of Johnson Illington Advisors. "The declines we're seeing really leave everyone speechless."
The credit crisis has shattered U.S. consumers' faith in financial institutions, including a stunning loss of confidence in the Federal Reserve, according to a survey released Friday.
Fifty-seven percent of U.S. consumers surveyed reported having lower confidence now in the Fed than five years ago, including 29% who said they had "a lot less" confidence, the Reuters/University of Michigan Surveys of Consumers said.
Compare that with confidence in the Fed after the 1987 stock market crash. Then, after U.S. stocks fell more than 20% in a day, just 19% of consumers said they had less confidence in the U.S. central bank, including only 7% who said they had "a lot less" confidence.
Stocks are sliding because the credit markets, which provide the cash that powers the economy, are locked up despite actions by world central banks. The credit market "remains on tentative footing," says Derrick Wulf at Dwight Asset Management. The London Interbank Offered Rate that banks charge each other for three-month loans is at its highest since late last year. The Fed said the commercial paper market, which large companies tap for cash, shrank $56.4 billion in the week ended Wednesday. "That's an alarming signal," says John Atkins of IDEAglobal.
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