U.S. stocks leap in another manic trading day

A drop in first-time jobless claims calmed nerves about the economy.

“In 2008 it felt apocalyptic; this just feels a little tiring,” said Jason Weisberg, a floor trader on the New York Stock Exchange and senior vice president at Seaport Securities

“It’s the new norm,” Alan Valdes, director of floor trade at DME Securities, said of the ongoing volatility.

After rising as much as 558.96 points, the Dow Jones Industrial Average ended up 423.37 points to 11,143.31, or 4% higher. The blue-chip index is now off 2.6% for the week, after four days of closing up or down 400 points or more.

 

For every stock that fell, a dozen gained on the New York Stock Exchange, where nearly 1.9 billion shares traded. Composite volume neared 7 billion.

“While the economy may not be getting better, jobless claims indicate that the labor market may not be getting worse,” said Dan Greenhaus, chief global strategist at BTIG LLC.

The Dow industrials on Monday tanked 634 points, only to rebound with a 429-point gain Tuesday. On Wednesday, the average fell 519 points in triple-digit moves reminiscent of Wall Street’s behavior during the financial crisis of late 2008.

 

“In 2008, the problem was a massive overhang of poorly understood, faulty mortgage-backed securities created and insured by U.S. financial institutions with virtually no reliable collateral,” noted Peter Morici, a business professor at the University of Maryland. “This time, the principal debtors are sovereigns with the capacity to tax and restructure debt.”

Investors lose a trillion dollars in one day

NEW YORK (CNNMoney) -- Investors lost a trillion dollars in the in the stock market Monday as the debt crisis in Europe, lackluster economic news and a downgrade to the U.S. credit rating spark fears of a double-dip recession.

The Wilshire 5000 Total Market Index, the broadest index of U.S. stocks, lost 891.93 points, or just over 7%, Monday. This represents a paper loss for the day of approximately $1.0 trillion.

Monday is the largest percentage drop for the Index since December 1, 2008 when it fell over 9%.

Since July 22, when Republicans abandoned debt negotiations with the White House for the third time that month, the index has lost $2.9 trillion in value.

Cynical investors, which could include any of the millions of Americans with pension plans, mutual funds or other retirement accounts, might be tempted to blame squabbling politicians in Washington for much of their ill fate. But experts say it's more complicated than that.

U.S. Treasuries are still safe! Sorta

Clark said the prospect of Italy or Spain defaulting on their debt, scant consumer spending and concern about the overall economy are causing the sell off in stocks.

"It's just fear, everything together," he said. "It's not just Washington."

Clark believes the market is way oversold.

Stocks did rally after the last big sell off following the financial crisis of 2008. The Wilshire Index remains 84%, or $6.9 trillion higher than it was in March 2009. But it's still $4 trillion lower than the market's pre-crisis high in 2007.

"This is the culmination of 60 years of have-it-now policies," he said, referring the deficits Washington has been running for so long. "[The downgrade] would have happened one way or another."

Ablin wasn't quite as upbeat as Clark in predicting the next rally, noting that his bank moved 10% of its $60 billion in assets under management into cash last week.

"Values are cheap and expectations are low," he said. "But I don't see a catalyst just yet." 

Credits -cnn

U.S Downgrade and Euro's Debt Crisis

HONG KONG (Reuters) - The U.S. dollar may weaken and Treasury yields rise when Asian markets reopen on Monday, though any selling in response to ratings agency S&P's downgrade of the United States is likely to be tempered by the escalating crisis in the euro zone.

The S&P cut in the U.S. long-term credit rating by a notch to AA-plus is an unprecedented blow and results from concerns about the nation's budget deficits and climbing debt burden. It called the outlook "negative," signalling another downgrade is possible in the next 12 to 18 months.

"The initial reaction will be a high degree of uncertainty and thus volatility since investors will not know where to turn for safety," said Mark Mobius, executive chairman of Templeton Emerging Markets group, in an email to Reuters.

"During the sub-prime crisis safety was in U.S. Dollars and U.S. Treasuries. Now that anchor to the global community is deteriorating," added Mobius, whose unit oversees $50 billion in emerging market assets.

Fears of a slide back into recession for the world's biggest economy prompted a global sell-off that wiped $2.5 trillion off company values over the past week, with consumer discretionary shares of firms dependent on external demand likely to be singled out for more punishment.

The fall in global share prices, as measured by the MSCI All-country World Index, was the biggest weekly decline since early October 2008, according to Thomson Reuters Datastream.

Market players warned the U.S. downgrade was likely to exacerbate a sharp contraction in risk appetite, and could see investors shift to the low-yielding Japanese yen and the Swiss Franc, despite market interventions from their respective authorities to weaken the currencies last week.

But they said fears that Europe's debt crisis could engulf core economies Spain and Italy, where sovereign debt yields have soared to 14-year highs, meant investors may still seek a safe-haven in the dollar, despite the U.S. woes.

Goldman Sachs strategists said there was a one-in-three probability of a U.S. recession due to the worsening European crisis, extension of payroll tax cuts and elevated levels of joblessness, despite a slight dip in the U.S. unemployment rate in July.

"Simply put, market sentiment appears acutely vulnerable given the build-up of concern on a sharper U.S. slowdown and speculation on the appropriate policy response and lingering fears stemming from the sovereign debt crisis in Europe," Citigroup strategists said in a note.

The benchmark MSCI all-country world stocks index fell to its lowest level since September 2010 last week, and has slumped more than 12 percent since late July.

The benchmark MSCI index of Asia Pacific ex-Japan stocks fell 8.7 percent last week.

Meanwhile, global leaders scrambled to discuss the U.S. sovereign rating downgrade and Europe's debt woes, and may issue a statement after a conference call, a Japanese government source said on Sunday.

Yields on benchmark U.S. ten-year treasury notes rebounded smartly to 2.56 percent on Friday but were not far away from a record low of near two percent hit during the throes of the global financial crisis.