Pessimism sends indexes tumbling
NEW YORK – Wall Street ended another terrible week Friday, leaving major indexes down more than 6 percent as investors worried that the recession will persist for at least the rest of the year and that government intervention will do little to hasten a recovery.
Investors shaved 100 points off the Dow Jones industrial average just a day after the market’s best-known indicator dropped to its lowest level since the depths of the last bear market, in 2002. Stocks of struggling financial companies were among the hardest hit.
The Standard & Poor’s 500 index, the barometer most closely watched by market pros, came close to its lowest point in nearly 12 years.
“Right now, more than a crisis in mortgages or in housing, we have a crisis in confidence. That is the biggest problem in trying to analyze the current market,” said James Stack, president of market research firm InvesTech Research in Whitefish, Mont. “You cannot analyze psychology.”
The Dow closed the week down 484.74, or 6.2 percent, at 7,365.67. The Standard & Poor’s 500 index fell 56.79, or 6.9 percent, to 770.05. The Nasdaq composite index fell 93.13, or 6.1 percent, closing at 1,441.23.
The Russell 2000 index, which tracks the performance of small company stocks, declined 37.40, or 8.3 percent, to 410.96.
The Dow Jones Wilshire 5000 Composite Index – a free-float weighted index that measures 5,000 U.S. based companies – ended at 7,802.27, down 583.47, or 6.96 percent, for the week. A year ago, the index was at 13,758.35.
Wall Street has been sinking lower as investors come to terms with the fact that the optimism behind a late-2008 rally was clearly unfounded. Companies’ forecasts for this year, on top of a dismal series of fourth-quarter earnings reports, pounded home the reality that no one can determine when the recession will end.
“It was a market that was built on that hope, and what we’re seeing now is an unwinding of that,” said Todd Salamone, director of trading and vice president of research at Schaeffer’s Investment Research in Cincinnati, of the rally from late November to early January.
The disappointment seen this week arose from the market’s growing recognition that the Obama administration’s multibillion-dollar stimulus and bailout programs are unlikely to turn the economy around anytime soon.
“There were a lot of people that were banking on Washington to get us out of this. I don’t know if there is anything Washington can do,” Salamone said. He said the global economy is going through the tedious process of reducing borrowing and working through bad debt – something government help can’t speed up.
The Dow’s 6.2 percent slide for the week was its worst performance since the week ended Oct. 10, when it lost 18.2 percent.