Stocks Down again
Back to reality and back, Wall Street focused on the landscape bleak future for the economy on Wednesday and ended with big gains a day earlier – and then some.
The Dow Jones industrial average 519 points and has lost more than 2,000 in less than three weeks. The swings of several hundred points within minutes, accelerated by continuous market, have become common.
This time, the selling was intensified by worries about Europe. U.S. bank stocks were hit hard as investors feared that the problems of foreign debt could reach the United States.
France was under pressure amid concerns that the U.S. could follow and become the next country to lose its top AAA rating. The French president cut short a vacation and pledged to cut the debts of the nation.
Stocks of major banks in Britain, Italy and Germany were beaten. The fear is that if European governments default on their bonds, it will hurt European banks that own them.
That could start a chain reaction that harms the United States due to the large U.S. banks have loans to European banks. The result on Wall Street, which has economic problems to worry about, was a radical change.
On Tuesday, the Federal Reserve said it plans to keep interest rates very low for two years. After some initial confusion, the stock market held a big comeback and had one of his best days.
But news of interest rates turned out to be a distraction. The Fed made the promise, because he sees almost no chance that the economy will improve substantially by 2013, as investors focused on that, dumped shares again.
“Now it’s back to fundamentals,” said Mark Lamkin, Lamkin Wealth Management’s founder, who manages $ 215 million.
The Dow closed at 10,719.94, up 4.6 percent on the day. Points, was the ninth-biggest decline for the market.
Asia stocks opened weaker on Thursday, but the sale does not seem so intense. Japan’s Nikkei 225 was down 1.3 percent and Hong Kong’s Hang Seng index fell less than 1 percent. South Korea Index Kopsi reversed an initial decline and move more.
Wednesday was a day marked by big changes on Wall Street. The Dow Jones dropped over 300 points within minutes of market opening. He recovered from that loss, and then drifting lower and lower over the last two hours.
The market has operated that way for two weeks, lurching up and down. The most extreme example was Tuesday, when the Dow Jones opened more than 600 points on the hour and 45 minutes after the declaration of the Federal Reserve.
The maximum stomach-turning and low are reminiscent of the fall of 2008, the depth of the financial crisis, when there were changes of 800 or even 1,000 points in one day.
The trading systems – programmed to analyze charts, take advantage of smaller price changes and perform operations without human intervention – the market is doing harder.
High frequency trading programs account for about half the volume of trading on a normal day’s market, but 70 percent or more in a volatile. Programs pounce on stock changes for chips only a penny, but so often it adds up.
Other investors also use charts and market indicators to make trades based on market momentum. The bet is that if the market is increasing, it will keep growing, and if it falls, it continues to fall.
More investors are turning to this strategy because the sharp economic slowdown has left unable to judge companies based on fundamentals, as well as projected earnings. The more people use a momentum strategy, the faster the increase in rates or fall.
The S & P 500 ended the day down 4.4 percent and the Nasdaq composite index by 4.1 percent.
Financial stocks led the market lower. Bank of America and Citigroup each lost more than 10 percent of its market value, in part due to concerns about Europe.
Besides the fear of a chain reaction of debt, Europe is a big market for U.S. companies. Representing about 29 percent of external sales of S & P 500 last year.
“It’s the same game of Old Maid playing in Europe was played here during the subprime mortgage crisis,” said Quincy Krosby, economist and market strategist at Prudential Financial.
In a sign that France may be the next gradient, the cost of insuring against default on French government bonds hit a record, according to Markit.
President Nicolas Sarkozy, rushed back to the French Riviera and an emergency meeting of key ministers after days of mounting warnings from analysts that the credit rating of the fifth largest economy in the world is at risk.
In Asia, the concern is that higher inflation in China could lead to slower growth. China, Brazil and other less developed countries have provided the highest economic growth since the world began to recover from the recession in 2009.
Gold rose above $ 1,800 an ounce for the first time as more money invested in investments considered safe in a volatile time for financial markets. Gold closed for about $ 41 to $ 1,784. It first passed $ 1,600 until the end of May.
The 10-year Treasury note, which also served as a refuge, also increased significantly. Its yield fell to 2.11 percent from 2.26 percent late Tuesday. It had reached a record low of 2.03 percent on Tuesday. Performance of a bond falls when its price rises.
Investors bought U.S. government debt, even after the S & P stripped the United States from its credit rating, AAA, last week.
About three stocks fell for each that rose on the NYSE. Consolidated trading volume was heavier than usual, 8.3 million shares. In July the average daily volume was less than half. On Monday, was $ 9.9 million, the highest since September 2008.
The shares have fallen so much that six companies have withdrawn their plans this week to sell shares in U.S. markets first, according to Dealogic. That brings the number of withdrawals initial public offerings, or IPO, to 65 this year. That is the most through this point in the year since 2001.