By  on September 22, 2011

Investors ran further from risk Thursday as they sold their stock holdings for the safety of U.S. government debt, sending the yield on a 10-year note to a record low and the U.S. equity markets into a tailspin for the second straight day.

The Dow Jones Industrial Average closed down 391.01 points, or 3.5 percent, to 10,733.83, while the S&P Retail Index fell 15.40 points, or 3 percent, to 499.06. The Dow has fallen 5.9 percent in the last two days, and dipped below the 11,000 mark for the first time since Sept. 9. All major retail and luxury stocks worldwide followed the Dow down.

Fears the global economy will slip back into recession are growing by the day as Greece continues to struggle with its austerity package and doubts remain about Italy, even though it has approved an austerity package of its own. Meanwhile, stock markets seem unimpressed by the latest action by the U.S. Federal Reserve Board to pump more money into the economy by buying $400 million worth of Treasury notes. The Fed warned Wednesday that there remained “significant downside risks” to the economy. Adding to investors’ misery was ratings agency Moody’s Investors Service’s downgrade of the credit ratings of three major banking institutions Wednesday, Bank of America Corporation, Citigroup Inc. and Wells Fargo & Co.

Those fears continued into Thursday as weak data from China showed a slowdown in its manufacturing sector.

Even if there isn’t another recession, the growing consensus is that developed nations worldwide are in a long, slow, difficult slog in the months and years ahead reminiscent of what Japan has experienced since the Nineties.

At a presentation hosted by The Robin Report and The Fashion Group International Thursday at the New York Hilton in Manhattan, Andrew Tilton, senior economist for Goldman Sachs, predicted continued low growth and low inflation over the next few years. Unemployment will stay high, he said. The economist also said he thought the federal funds rate, now hovering at zero, will stay at that level longer than promised and possibly into 2014.

“The U.S. economy in 2011 so far has had a very difficult economic recovery,” said Tilton, owing in part to high commodity prices.

He explained, “In every other economic recovery since World War II, consumer spending on oil and gas was less. In this recovery, there was a huge increase [in spending for oil and gas]. This was very different from past cycles.”

He said governments are contributing to the slowdown as well: “The age of fiscal austerity has started. Governments cut their spending, taxes go up, and both result in a slowdown in spending.”

Both Christine Lagarde, head of the International Monetary Fund, and Robert Zoellick, president of the World Bank, gave downbeat comments about the prospects for economic recovery on Thursday.

“I still think a double-dip recession for the world’s major economies is unlikely,” said Zoellick during an address in Washington, D.C. “But my confidence in that belief is being eroded daily by the steady drip of difficult economic news. A crisis made in the developed world could become a crisis for developing countries.

“Europe, Japan and the United States must act to address their big economic problems before they become bigger problems for the rest of the world,” he said.

The rush to safety by investors on Thursday didn’t impact only stocks. Commodities also tumbled in trading Thursday, with gold falling $66.40, or 3.7 percent, to $1,741.70 an ounce and benchmark crude declining $5.41, or 6.3 percent, to $80.51 a barrel.

In Asia, the Hang Seng Index closed down 912.22 points, or 4.8 percent, to 17,911.95, while the Nikkei 225 fell 180.90, or 2.1 percent, to 8,560.26.

European stock markets then joined the free fall. France’s CAC 40 led the pack, falling 5.25 percent, followed by Germany’s DAX, which fell 4.91 percent. The FTSE 100 retreated 4.64 percent, while Italy’s FTSE MIB fell 3.96 percent.

All major retail and luxury stocks shouldered losses, with the day’s biggest losers including Burberry, which plummeted 10.1 percent to 1,356 pence, or $21.25; Richemont, which sank 8.8 percent to 44.59 Swiss francs, or $49.98; Ferragamo, which slid 9 percent to 11.28 euros, or $15.44; ASOS, which fell 7.4 percent to 1.63 pounds, or $25.59, and LVMH Moët Hennessy Louis Vuitton, which declined 6.1 percent to 106.90 euros, or $146.34. Prada, which is quoted on the Hong Kong stock exchange, closed down 9.6 percent to 35.05 Hong Kong dollars, or $17.33, even after reporting a 74 percent spike in first-half profits earlier this week. All conversions are at current exchange.

Among the U.S. retailers showing declines were: The Bon-Ton Stores Inc., down 51 cents, or 8.8 percent, to $5.29; Tiffany & Co., down $4.72, or 6.5 percent, to $67.47; Sears Holdings Corp., down $3.20, or 5.8 percent, to $52.04; Abercrombie & Fitch Co., down $3.75, or 5.7 percent, to $61.8; Dillard’s Inc., down $2.27, or 4.9 percent, to $43.64; Target Corp., down $2.30, or 4.5 percent, to $49.13, and Macy’s Inc., down $1.13 cents, or 4.3 percent, to $24.99.

“What we’re seeing overall is a flight from risk,” said Kate Calvert, retail research analyst at Seymour Pierce in London. “For the retailers, there is a concern because the consumer already feels stretched.”

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