Recession Fears Spark Major Stock Sell Off
Wednesday, October 15, 2008SUZANNE PRATT: New concerns about the U.S. economy sparked a ferocious sell-off on Wall Street. The Dow plummeted nearly 8 percent, or 733 points, its second biggest one-day point drop. The NASDAQ plunged 8.5 percent, and the S&P 500 tumbled 9 percent. Investors dumped stocks following a batch of economic reports that suggest a severe recession. Comments by Federal Reserve Chairman Ben Bernanke did little to alter that pessimistic outlook. As Erika Miller reports, consumer spending has already slowed sharply, and there's great concern that corporate profits will soon follow.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Another devastating day on Wall Street as investors agonized about the weakening economy. Stock strategist Scott Wren says fears are growing of a prolonged recession, which would hurt corporate profits.
SCOTT WREN, SENIOR EQUITY STRATEGIST, WACHOVIA SECURITIES: I think a lot of this is emotion. A lot of it is uncertainty. But there's definitely some economic fundamentals behind it that say, hey, we're going to be in for a period here of a significant slower, significant weaker economic growth.
MILLER: Stocks were rattled by a warning from Fed Chairman Ben Bernanke today that the economy won't rebound quickly, even if the credit crisis is resolved.
BEN BERNANKE, CHAIRMAN, FEDERAL RESERVE BOARD: Stabilization of the financial markets is a critical first step, but even if they stabilize as we hope they will, broader economic recovery will not happen right away.
MILLER: Those concerns were supported by new data showing retail sales have now fallen three months in a row, something that hasn't happened since at least 1992. Economist Michael Moran sees continued weakness in spending as the crucial holiday season approaches.
MICHAEL MORAN, CHIEF ECONOMIST, DAIWA SECURITIES: I think it's a combination of the soft labor market and the difficulties in the financial system that is leading consumers to be quite cautious right now. I suspect as we go through the rest of the year, and even into early 2009, we're going to see consumers spend cautiously.
MILLER: Adding to the grim outlook was word from the Federal Reserve's Beige Book that economic activity weakened across all 12 districts. Economist Jim O'Sullivan thinks the U.S. is in the midst of a deepening recession.
JAMES O'SULLIVAN, SENIOR U.S. ECONOMIST, UBS: Our view has been that the recession actually started a while ago but it was pretty mild by past standards in the first half of the year. But it' pretty clear based on the latest data that it's not as mild as it was, that there is intensification of weakness.
MILLER: Ben Bernanke tried to reassure investors that policymakers will continue to do everything they can to calm financial markets. But he did not promise the interest rate cuts many investors are now expecting.
BERNANKE: We will not stand down until we have achieved our goals of repairing and reforming our financial system and restoring prosperity.
MILLER: Strategists are already warning there could be more big losses for stocks this week. Not only are they predicting more depressing economic news, but also an onslaught of weak corporate earnings. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
