October 6, 2008
U.S. stocks opened sharply lower, mirroring losses in Europe, Asia, and much of the developing world. In New York, the Dow Jones Industrial average crossed below an important psychological floor, the 10,000 mark, for the first time since October, 2004. The Dow was more than four percent lower in early trading. It has lost about a quarter of its value this year.
Major markets were hard-hit across the globe.
Stocks in Tokyo and Hong Kong finished the day down more than four percent. In late-day trading, shares in London, Paris and Frankfurt had all fallen more than six percent. India's stock market fell to a two-year low, while trading in Brazil had to be halted twice after a 10-percent plunge followed by an additional five percent decline.
Deepening concerns about tight credit and the apparent inability of central banks to combat it are eroding global market confidence, according to London-based financial analyst Michael Wilson.
"However much governments borrow, however much liquidity [cash] is put into the system, it [market confidence] needs trust and confidence being restored between banks, and there is none of that this morning," said Wilson.
Last week, President Bush signed a massive rescue package to aid U.S. financial institutions facing ruin amid a continuing wave of home foreclosures. The bill allows the treasury to buy bad debt stemming from risky home mortgages, and raises the limit on federally insured bank accounts. Several European governments are following suit with bail-out initiatives and deposit guarantees.
Boston-based investments advisor Art Hogan says European countries are facing the same tough choices the United States has wrestled with in recent weeks.
"Germany and the rest of Europe are not quite as [far] along the learning curve of what needs to be done to straighten out the balance sheets of some of the financial institutions," said Hogan.
Amid further signs of global economic weakness, crude oil prices fell further, while gold rose sharply.
Chris Varveras of the Washington-based National Association for Business Economics says the United States appears headed for a recession.
"Our economists have become more negative on the economic outlook for the next few quarters, with about two-thirds of us believing that we are either already in a recession or will soon enter recession," said Varveras.
The U.S. central bank has announced new steps to stimulate credit
markets. The Federal Reserve says it will begin paying interest on
commercial banks' reserves and will expand its loan program to troubled