Wall Street's 'fear gauge' jumps to record high
US stocks resumed their punishing decline at the end of an erratic week as heightened fears of global recession pushed markets worldwide to fresh lows.
Before the open, trading in S&P, Nasdaq and Dow Jones futures were frozen as the sell-off reached panic levels and hit the maximums allowed.
That sparked fears that US stocks’ decline would be so dramatic that it could force the introduction of so-called circuit-breakers, in which the New York Stock Exchange halts trading.
Still, the market avoided the outright capitulation some people feared - and others regarded as a necessary precursor for a subsequent bounce. “A lot of people are on the sidelines,” said Ken McGee, head trader at hedge fund Topos.
Matt King, chief investment officer at Bell Investment Advisors, said earlier. “I did expect a much worse start to the day. It’s silly to say today was a positive . . . but it’s a silly market.”
The Chicago Board Options Exchange Volatility Index, known as Wall Street’s fear gauge, closed up 16.8 per cent at 79.17, another closing high.
The S&P 500 closed down 3.5 per cent at 876.77 points after another sharp sell-off towards the close, a trend in recent sessions. The Dow Jones Industrial Average was 3.6 per cent off at 8,378.95 points while the Nasdaq Composite Index fell 3.2 per cent to 1,552.03 points. It slide took the decline on the week for the S&P to 6.8 per cent, the Dow to 5.4 per cent and Nasdaq to 9.3 per cent.
Financials and energy were among the day’s worst decliners, each down 3.9 per cent. National City slid 24.7 per cent to $2.07 after it emerged that PNC Financial Services Group was to buy the embattled Cleveland bank. PNC will pay $2.23 a share, 19 per cent less than National City’s Tuesday closing price. PNC Financial Services Group shares gained 3.5 per cent to $58.88.
Motor groups were hit after Toyota reported its first sales decline in seven years and Chrysler said that it would cut 25 per cent of its its salaried and supplemental workforce. General Motors, reported to be in merger talks with Chrysler, lost 2.5 per cent to $5.95.
F ord , in which the investment vehicle of Kirk Kerkorian, the billionaire investor, sold part of its 6.5 per cent stake and said it might sell the rest, gained 0.5 per cent yesterday. It shed 17.3 per cent for the week to $2.01.
Microsoft was a bright spot early yesterday but closed down 1.6 per cent to $21.96 even after the technology group reported a better-than-expected quarterly profit and cut its outlook less than some investors had feared.
The week began in upbeat fashion, helped by the prospect of another government stimulus package that may be needed to help the economy through a slowdown.
Yet stocks were pushed lower by poor corporate earnings and warnings of reduced profitability.
Disappointing figures and outlooks from the likes of AT&T and Boeing led to fresh five-year lows. But trading was highly volatile as investors considered whether other relatively upbeat corporate earnings showed that the global economy might not be as grim as the market’s brutal sell-off implied.
Over much of the week, money markets showed signs of easing. The rate at which banks lend to each other, measured by overnight dollar Libor, remained below the Fed Funds rate target level. Yet financials were one of the worst performers over the week, down 10.5 per cent overall.
Goldman Sachs lost 7.5 per cent yesterday and 12.2 per cent over the week to $100.40 after it emerged that it planned to cut about 10 per cent of its workforce in response to the worsening economic environment.
All 10 economic sectors ended the week firmly in negative territory, although healthcare outperformed, down 3.5 per cent.
Pfizer helped sentiment in the sector after the drug group’s results beat Wall Street estimates yet the stock was down 2 per cent to $16.57 over the week.
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