Deficit, jobs, Europe were among topics
WASHINGTON – Yet another day of sliding stocks Wednesday sent policymakers and Wall Street leaders looking for ways to end the stock market volatility before it does more damage to an already weak economy.
For only the third time this year, President Barack Obama and Federal Reserve Chairman Ben Bernanke met face to face as investors dumped stocks in a selling frenzy that erased the large gains that had been rung up only a day earlier.
The Dow Jones industrial average shed 519.83 points, or 4.62 percent, to close at 10,719.94 on heavy volume. The S&P 500 plunged 51.77 points, or 4.42 percent, to 1120.76, and the NASDAQ slid 101.47 points, or 4.09 percent, to 2381.05.
Concerns about Europe’s widening debt crisis and continued worries about the outlook for the U.S. economy drove the sell-off.
Financial stocks led the decline, as investors fretted that U.S. banks and investment companies are at risk of catching the mounting problems in Europe. Among those most affected was Bank of America, which news reports late Wednesday said had begun discussions with foreign investors about selling part of its 10 percent stake in China Construction Bank, one of China’s most dynamic financial institutions. That move would allow Bank of America to raise more capital to meet regulatory requirements without having to issue new stock.
The markets’ down day began in Europe, where fears mounted that France could face a credit-rating downgrade and that French banks, especially Societe Generale, the country’s largest, were facing a credit crisis. Stock prices in the U.S. bounced up and down throughout the day before settling on a downward trajectory in the final hour of trading, the third consecutive trading day in which prices swung wildly between highs and lows.
The White House, in a statement released after the markets had closed, said Bernanke and Obama had discussed the global and U.S. economic picture a day after the Fed chief surprised markets by signaling that he expected growth to remain sluggish at least into 2013. Also in attendance were Treasury Secretary Tim Geithner, National Economic Council head Gene Sperling and White House chief of staff Bill Daley.
“The president and the chairman discussed the outlook for the recovery and for jobs as well as fiscal issues, including the need to tackle long-term deficit reduction. They also discussed the situation in Europe,” the statement said.
Earlier in the day, White House spokesman Jay Carney was careful to note that the meeting had nothing to do with Bernanke’s bold move Tuesday declaring that the Fed’s benchmark lending rate will stay near zero until at least mid-2013.
“Obviously, the Fed is an independent body that takes independent actions,” Carney said, declining to provide exact details about what Obama and Bernanke discussed. “And so they speak broadly about the economy.”
Asked whether the president should do something “extraordinary” on jobs, Carney said Obama had pressed his team “to look at ideas for further job creation and economic growth.”
The unstated fear in Washington and on Wall Street is that the stock declines, if they continue, will tip the economy from subpar growth back into recession.
Ken Goldstein, an economist with The Conference Board, which provides a closely followed monthly gauge on consumer confidence, said he thought that wouldn’t happen unless the Dow were to drop another 2,000 points.
“In a prizefight, this is a jab and not a knockout punch, for now,” he said. “How much attention do consumers pay to the stock market, anyway? We’ve seen this act before; it’s not the first time we’ve seen the stock market lose its mind.”
Still, the volatility is just one more head wind for the U.S. economy, which grew at an annual rate of less than 1 percent for the first half of this year.
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