By Lalit K. Jha, IANS,
New York : The benchmark Dow Jones plumbed to 680 points Monday – one of the worst days ever – as the National Bureau of Economic Research declared that recession in the US began in December of the last year.
The panic sell indicated that investors have little confidence in the market now, resulting in sharp decline in stocks of some of the major players.
The Wall Street Journal said Monday’s drop of Dow Jones Industrial average by 679.95 points of 7.7 percent was the 12th biggest one-day percentage drop and the fourth sharpest point drop since it was launched in 1896.
The Standard & Poor’s 500-stock index fell 8.9 percent or 80.03 points, to 816.21. The NASDAQ composite index dropped by nine percent.
Stocks of Wall Street investment firms and banking giants were badly affected by this. The stocks of Citigroup fell by 22 percent, while that of Bank of America dropped by 21 percent and J.P. Morgan Chase by 18 percent.
Market observers attributed this significant drop to the report released Monday by the non-partisan National Bureau of Economic Research (NBER), which said that the recession in the US started December 2007. NBER is responsible for officially dating recession.
“The (Business Cycle Dating) committee determined that the decline in economic activity in 2008 met the standard for a recession,” the NBER said.
This is the first such contraction since 2001 and the end of 73 months of economic expansion, it said.
“All evidences other than the ambiguous movements of the quarterly product-side measure of domestic production confirmed that conclusion. Many of these indicators, including monthly data on the largest component of GDP, consumption, have declined sharply in recent months,” it said.
The report confirmed the fears among investors that quick recovery of the economy is unlikely to happen now.
“To find out that we are 11 months into the recession with no end in sight, I think that concerns people,” Douglas M. Peta, an independent market strategist, told The New York Times.
“The real question is, how bad is this recession?” Jeffrey Kleintop, chief market strategist at brokerage firm LPL Financial, Boston, was quoted as saying by The Wall Street Journal.
“We know it is not mild. Is it severe or is it a Great Depression-type event?” he asked.
There were other reports too during the day, along with the statements by the Treasury Secretary Henry Paulson, and Federal Reserve Bank Chairman, Ben Bernanke, which add to the loss of confidence by the investors.
Institute for Supply Management’s manufacturing index deteriorated to 36.2 in November, down from 38.9 the month before.
Paulson said Treasury Department is looking at new ways to stabilize the financial markets. “Today we continue to work through a severe financial crisis,” he said.
“While we are making progress, the journey ahead will continue to be a difficult one. But I have confidence that we are pursuing the right strategy to stabilize the financial system and support the flow of credit into our economy,” he said.
At the same time, Bernanke said: “The likely duration of the financial turmoil is difficult to judge, and thus the uncertainty surrounding the economic outlook is unusually large. But even if the functioning of financial markets continues to improve, economic conditions will probably remain weak for a time.”