GRIM ECONOMIC REALITY HITS GLOBAL MARKETS
MANILA, NOVEMBER 7, 2008 (STAR) World stock markets tumbled yesterday as the euphoria over the historic victory of Barack Obama in the US presidential election gave way to worries about the global economy and company profits.
A case of post-election nerves sent Wall Street plunging Wednesday as investors absorbed a stream of bad economic news and wondered how the Obama presidency will help the US weather a possibly severe recession.
The Dow Jones industrials fell nearly 500 points, and all the major indexes tumbled more than 5 percent.
The slide ended the best stretch since the financial meltdown began in mid-September, following a run-up last week that lifted the Standard & Poor's 500 index more than 18 percent and gave the Dow its best weekly advance in 34 years. The market had been expected to give back some gains, however, and analysts had warned that Wall Street faced more turbulence.
"The market has really gotten ahead of itself and falsely priced in that this recession wasn't going to be as prolonged as thought," said Ryan Larson, head of equity trading at Voyageur Asset Management, a subsidiary of RBC Dain Rauscher. "Regardless of who won the White House, these problems are not going away.
"We're in a really bad recession, period," he said. "People are locking in profits and realizing we're not out of the woods."
Worries about the financial sector intensified after Goldman Sachs Group Inc. began notifying about 3,200 employees globally that they had lost their jobs as part of a plan to slash 10 percent of its work force.
The cuts were first reported last month. Goldman fell 8 percent, while other financial names also fell. Citigroup Inc. dropped 14 percent.
Commodities stocks also fell after steelmaker ArcelorMittal said it would slash production because of weakening demand. Its stock plunged 21.5 percent.
The market expected Obama to win the election, but as the session wore on, investors clearly worried about the weakness of the economy and pondered what the new administration might do.
Analysts said the market is already anxious about Obama's upcoming selections for Treasury secretary and other Cabinet positions.
"The celebration is over. Today we saw a bit of reality," said Al Goldman, chief market strategist at Wachovia Securities in St. Louis. "President-elect Obama is coming into a situation with limited experience, having to handle an economy in serious trouble, a couple of wars and terrorism. It's an extremely tough job."
Late-day selling by hedge funds helped deepen the market's losses during the last hour. More selling by the funds is expected to weigh on the market ahead of a Nov. 15 cutoff for shareholders to notify fund managers of their intent to cash out investments before year-end.
The Dow fell 486.01, or 5.05 percent, to 9,139.27. The blue chips had risen more than 300 on Tuesday, and last week rose 11.3 percent, their biggest weekly gain since 1974.
The S&P 500 index fell 52.98, or 5.27 percent, to 952.77. Through the six sessions that ended Tuesday, the index, the one most closely watched by market professionals, rose 18.3 percent.
Goldman said trading could remain turbulent as investors assess the shape and direction of Obama's forthcoming economic policies.
"The market has to go through a period of figuring out if they are going to gain confidence in Obama and the Congress or lose it," he said.
Obama's victory means that industries such as oil and gas producers, utilities and pharmaceuticals may face greater regulation and even taxes, while labor unions and automakers are expected to benefit.
Meanwhile, banks, insurance companies, hedge funds and the rest of the financial sector will almost certainly face attempts at a regulatory overhaul by the more heavily Democratic Congress.
Investors are also watching pharmaceuticals and alternative energy sectors and credit markets. The paralysis in the credit markets that began after the bankruptcy of Lehman Brothers Holdings Inc. has been alleviated somewhat by a series of government interventions, but the markets still show signs of strain.
Banks continued to ratchet down the rates they charge one another for borrowing on Wednesday, but the key interbank lending rate - the London Interbank Offered Rate, or Libor - remained well above the Federal Reserve's target interest rate of 1 percent. Libor for three-month dollar loans fell to 2.51 percent from 2.71 percent Tuesday.
Asian markets down Japan's Nikkei stock average retreated 6.5 percent to 8,899.14, and Hong Kong's Hang Seng Index lost 7.1 percent to 13,790.04.
South Korea's benchmark Kospi index broke a five-session winning streak to dive 7.6 percent. Markets in Singapore, Australia and mainland China also dropped sharply.
The pullback was in line with weakness on Wall Street, where investor optimism surrounding the election of Democrat Barack Obama as president quickly evaporated in the face of gloomy economic news. The US service sector, the largest component of America's gross domestic product, contracted sharply in October as new orders and employment fell.
A series of profit warnings from major companies such as Japan's Toyota Motor Corp. and Isuzu Motors Ltd. and Hong Kong carrier Cathay Pacific Airways Ltd. yanked the markets back to the reality of depressed economic conditions. After seeing some strong gains in recent days, many investors moved to take profits.
"We had one week of a rebound and then we're coming back to reality," said Francis Lun, general manager of Fulbright Securities in Hong Kong. "Despite the euphoria over the election, the world's economy hasn't changed."
In South Korea, negative economic indicators out of the US weighed heavily on every sector, analysts said. Samsung Electronics Co. declined 4.6 percent.
Hong Kong's Cathay Pacific plummeted over 14 percent after the carrier, Asia's third largest, warned that full-year results would be "disappointing" due to slumping revenue and losses from hedging its jet fuel costs.
Crude prices sank further. Light, sweet crude for December delivery was down 70 cents to $64.60 a barrel in electronic trading on the New York Mercantile Exchange by late afternoon in Singapore. The contract settled at $65.30 overnight. Oil prices have fallen by about 56 percent since peaking at $147.27 a barrel in mid-July.
Sharp declines European stocks followed Asia into sharp declines on Thursday and oil extended losses as weak US data intensified fears about the impact of recession in major economies hit by the worst financial crisis in 80 years.
The euro and sterling fell against the dollar as investors braced for the European Central Bank and the Bank of England to cut interest rates by at least half a percentage point.
Euphoria after the Obama victory evaporated as Wednesday's data showed cuts in employment by private employers and a sharp contraction in the service sector, revealing the scale of a slowdown in the world's biggest economy.
"We're back to the grim reality of economic data showing recessionary conditions and lower earnings guidance," said Bernard McAlinden, investment strategist at NCB Stockbrokers. "The counterbalance is interest rate cuts. We're no longer in a situation where big cuts would cause panic." MSCI world equity index fell 2.4 percent while emerging stocks lost more than 5 percent. Asian stocks fell 7 percent.
Russia's largest stock exchange MICEX halted trading of stocks for one hour after stock prices fell sharply.
The euro fell half a percent to $1.2898 while sterling ticked down to $1.5933. The dollar rose slightly against a basket of major currencies. - AP
Chief News Editor: Sol Jose Vanzi
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