In a stretch uncomfortably reminiscent of 2008 for investors, Greece’s drawn-out debt struggle sparked broader concerns last week, sending stocks reeling and dramatizing the incomplete nature of the global economic recovery.
This story first appeared in the May 10, 2010 issue of WWD. Subscribe Today.
And the volatility is expected to continue with the fate of the Greek economy still in question, leaving investors to worry over the possible spread of the contagion to Portugal, Spain and other European nations and the effects of the uncertainty on the euro and global markets.
The S&P Retail Index fell 1.7 percent, or 7.77 points, to 443.29 Friday, making for a 6.7 percent drop for the week. The Dow Jones Industrial Average declined 1.3 percent, or 139.89 points, to 10,380.43, giving up 5.7 percent for the week, its worst contraction since March 2009. Of the 172 stocks tracked by WWD, 162 fell last week, nine rose and one held steady.
Blue chip stocks plummeted more than 1,000 points Thursday afternoon in a still-unexplained trading mishap that served only to exacerbate tensions that even long-awaited signs of strength in the U.S. job market could not ease. Employers added a better-than-expected 290,000 workers to their payrolls in April, but investors remained fixated on Europe.
“Until they do a restructuring of all the Greek debt, this type of thing is going to continue,” said James Smith, chief economist for Parsec Financial Management. “Right now, we have people [including European officials] trying to tell us everything is fine, and anybody can see it’s not fine, and whether it was partly electronic glitches or just people panicking doesn’t really change that.”
One question hanging over the markets is who owns the Greek debt that could potentially sour, and whether they have any way to protect themselves from that exposure.
“Nobody’s looking at fundamentals,” Smith said. “We have a mania going on again. The world economy is still very fragile.”
The Athex Composite Index slumped 2.9 percent to 1,630.47 during the week’s final trading session in Athens, where three people were earlier killed in protests over austerity measures intended to alleviate budget stresses. And the FTSE 100 fell 2.5 percent to 5,131.02 in London as Britain’s political leaders set about the work of putting together a government from the first hung parliament since 1973.
The resilience the U.S. economy has shown in recent months might help shield it from Europe’s troubles.
“Another recession would be unlikely from what’s happening in Europe rippling this way,” said Michael Niemira, chief economist and director of research at the International Council of Shopping Centers. He said the U.S. economy would be supported by businesses that have become lean and mean after recent cost cuts and consumers who have increased their savings rates.
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