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US officially in recession, Dow falls sharply
(Agencies)
Updated: 2008-12-02 06:49 The reality that the United States is indeed in recession and that the downturn may well be prolonged sent Wall Street plunging Monday, hurtling the Dow Jones industrials down nearly 700 points and wiping out more than half of last week's big gains. All the major indicators fell more than 7 percent, with the Standard & Poor's 500 index down nearly 9 percent.
The market spent the day absorbing a litany of bad news that convinced investors that the optimism that fed a 1,276-point gain in the Dow over five sessions was premature. Stocks first slid on initial reports that the first weekend of the holiday shopping season, while better than some retailers and analysts feared, saw only modest gains. That had Wall Street worried that the rest of the season would be disastrous, a troubling thought not only for retailers but for an economy that is dependent on consumer spending for its growth. According to figures released by ShopperTrak RCT, a research firm that tracks total retail sales at more than 50,000 outlets, sales over Friday and Saturday rose just 1.9 percent. Meanwhile, downbeat economic reports on the country's manufacturing sector and construction spending only added to investors' concerns. Speeches from Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson also did little to assuage investors about the downturn. The day's news reminded investors, who last week were buying on a burst of optimism, that the economy is still in serious trouble. Then, at midday, Wall Street got confirmation of what everyone has suspected for months, that the nation is indeed in a recession. The National Bureau of Economic Research, considered the arbiter of when the economy is in recession or expanding, said the US recession had begun a year ago, in December 2007. That assessment made the retail sales figures all the more unnerving. "Unfortunately, two-thirds of the American economy is based on the spending of the American consumer," said Mike Stanfield, chief executive of VSR Financial Services. "When the consumer pulls back, it's very hard for the economy to gain much traction." Investors had been hopeful that last week's rally, when the major indexes shot up by double digit percentages, was a sign that some stability had returned to a market badly shaken by months of discouraging economic data. But analysts expect economic concerns to weigh on the market for some time to come. "Everyone knows the recession is on us, the question is now will it be short and shallow or long and severe," Stanfield said. Chuck Widger, chief executive of investment management firm Brinker Capital, expects the volatility to continue until investors have better visibility on the future. "Investors are looking for better data on the economy," he said. "We've got baked in pretty nasty assumptions for the economy this quarter. The markets are looking ahead to the first quarter for data that will confirm or deny the bad news." (For more biz stories, please visit Industries)
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