- The Washington Times - Saturday, November 15, 2008

NEW YORK | Wall Street ended a turbulent week with another astonishing show of volatility Friday, with stocks plunging, recovering and then plunging again as investors absorbed another wave of downbeat economic news. Hedge fund selling in advance of a Saturday deadline contributed to the market’s gyrations, which set back the Dow Jones Industrial Average almost 340 points.

Some retrenchment was to be expected after a big rally Thursday, when the Dow rallied more than 550 points after falling near its lows for the year. But there was plenty of discouraging news for investors to focus on, including comments from Federal Reserve Chairman Ben S. Bernanke that the markets remain under “severe strain” and a sobering report on October retail sales.

Analysts believe the market is still searching for a bottom after last month’s huge losses, and that the pattern of volatility will continue for some time - selling, even on technical reasons like looming deadlines for cashing out hedge fund holdings, is still coming against a backdrop of an extremely weak economy.

“Clearly, the trading crowd like hedge funds can take this market in any direction they want to. Anybody looking to build a position is just not confident,” said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co.

The session saw another stream of bad news. Mr. Bernanke said during a speech in Frankfurt, Germany, that he would work closely with other central banks to try to alleviate the global financial crisis and left open the door to a fresh interest rate cut. The Fed will meet Dec. 16 at its last regularly scheduled meeting this year.

While Wall Street would like to see another rate cut, many investors aren’t sure, given the litany of bad economic and corporate news, of how effective a rate reduction would be in the near term. Many investors are still trying to assimilate to the idea that the economy’s downturn would be protracted, lasting well into next year and perhaps longer.

The Commerce Department reported that retail sales plunged by the largest amount on record in October as consumers cut back on spending in the wake of the financial crisis. Retail sales fell by 2.8 percent last month, surpassing the old mark of a 2.65 percent drop in November 2001 in the wake of the terrorist attacks that year.

The market got more disappointing consumer news from retailers Abercrombie & Fitch Co. and JCPenney Co. Both warned that profits will come in below Wall Street’s already lowered projections as retailers head into a holiday shopping season that could be among the slowest on record.

The great fear on Wall Street is that Americans’ reluctance to spend will extend what is already a serious economic downturn. A barrage of negative consumer news sent stocks tumbling earlier in the week.

But the market drew some comfort Friday afternoon from comments from Treasury Secretary Henry M. Paulson Jr., who told CNBC that capital injections in the banking sector will help stimulate lending. He also defended the decision to not buy so-called toxic assets from banks, saying that it would not work quickly. The move helped send stocks falling earlier this week.

The Dow fell 337.93, or 3.82 percent, to 8,497.31. The Standard & Poor’s 500 Index fell 38.00, or 4.17 percent, to 873.29, and the Nasdaq Composite Index stumbled 79.85, or 5.00 percent, to 1,516.85.

The Russell 2000 Index of smaller companies fell 34.71, or 7.07 percent, to 456.52.

Declining issues outpaced advancers by about 4 to 1 on the New York Stock Exchange, where volume came to 1.4 billion shares.

On Thursday, the Dow’s surge was the third-largest point gain for a single session on record, following the 889-point rise on Oct. 28 and the 936-point surge on Oct. 13. The rally came after three days of selling that wiped out about $1 trillion in shareholder value.

Wall Street’s violent swings in recent weeks are part of the market’s ongoing “bottoming” process, analysts say, in which the market retests the lows hit last month. The market is expected to remain volatile, as evidenced by past recoveries from a bear market.

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