Stocks dive on belief global recession is likely
NEW YORK -- Wall Street joined world stock markets in a pullback Friday, with the Dow Jones industrials dropping more than 300 points and all the major indexes falling more than 3% amid rising fears that the global economy is in for a deep recession.
The pullback on Wall Street wasn't as steep as some observers had feared though the pace of selling at times accelerated. Massive declines occurred overseas Friday after another round of grim corporate news stirred fears about global economies. Investors also grew nervous before the markets opened as U.S. stock futures — the bets traders place on where the market will go — fell so sharply that selling halts were imposed.
According to preliminary calculations, the Dow fell 312.30 points, or 3.6%, to close at 8,378.95, after dropping as low as 500 points early in the day.
The Standard & Poor's 500 index dropped 31.34, or 3.5%, to 876.77 and the Nasdaq compostie index fell 51.88, or 3.2%, to 1,552.03.
Diving stock prices are being driven by emotion and fear in a bear market that just seems to get worse, says Andy Brooks, head trader at mutual fund giant T. Rowe Price.
"It is pretty serious," says Brooks. "Stocks around the globe are down 9%." Stocks fell 9.6% in Tokyo, 8.3% in Hong Kong and were down only slightly less in major European markets.
The Dow, which was 550 points below Thursday's close in futures trading before the opening bell, seemed to be holding up fairly well, considering the steeps drops around the world.
Another bright spot is that both the Dow and the broader Standard & Poor's 500 index are still trading above their intra-day lows — 7773 for the Dow and 839.80 for the S&P — hit during the panic-led sell-off on Friday Oct. 10.
Much of the selling has been driven by global deleveraging, a process in which investors sell securities to reduce risk and lower their exposure to financial markets.
Investors are still unsure how far along in the deleveraging process we are. It is made worse because many big investors, such as hedge funds, were invested with borrowed money, which amplifies losses.
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