Investors rushed to get out of stocks Thursday as they worried about the prospects for a global recession.
At about noon, the widely watched Dow Jones Industrial Average was off 370 points, or 3.3 percent. The sell-off was broad with the Standard & Poor’s and Nasdaq averages also tumbling. It finished the day down 391.01.
The weakness in stocks also spread to economy-sensitive commodities, with the prices of copper and oil falling sharply. The price of gold fell by more than $70 an ounce, about 4 percent, as the U.S. dollar strengthened compared with the euro.
The stock sell-off was partly a follow-on to Wednesday, when the Dow Jones Industrial Average dropped 283.22 points after the Federal Reserve said “there are significant downside risks to the economic outlook.”
In its statement, the Fed referred to recent indications of “continuing weakness” in the labor market. However, new claims for unemployment actually dropped by 9,000 last week, the Department of Labor reported Thursday. Still, the claims remained at a relatively high level, indicating that the jobs market remains weak.
“The four-week moving average is creeping higher, which is not good,” says Anthony Valeri, a market strategist at LPL Financial in San Diego. “If this recent blip up were to continue, you could make the argument we’re going into a recession.”
In his morning comment Thursday, Fred Dickson of D.A. Davidson & Co. in Lake Oswego, Ore., said there was a “perfect storm of bad news” hitting the financial markets from Washington, Europe, and Asia.
In Europe, manufacturing and services activity fell in August for the first time in two years. According to an analysis by Barclays Capital Research in New York, the data indicate the manufacturing sector in Europe “is set to experience recession,” with a considerable gap between new orders and inventories.
Even Germany, which has been buoyant all summer, appears to have hit the brakes, according to an analysis by IHS Global Insight in Lexington, Mass. “Growth was similarly marginal in France following a sharp loss of momentum in September itself,” IHS wrote in its analysis.
A slowdown also seems to be taking place in China. A widely watched HSBC index of economic activity indicated that the Chinese economy was starting to contract.
“Again, this is a sign we may be flirting with recession, if we are not already in one,” Valeri says.