- The Washington Times - Wednesday, October 15, 2014

Global stocks nose-dived Wednesday on fears that the world economy is losing steam, with some analysts blaming the worst string of losses on Wall Street in years in part on spreading panic about the economic impact of the Ebola crisis.

The Dow Jones industrial average plummeted as much as 460 points during afternoon trading on the New York Stock Exchange, when the market came close to registering a cumulative 10 percent loss of value since the beginning of the month.

But the Dow and other indexes were able to pare those dizzying losses by the close of trading, with the Dow ending down 173.45 points, or 1 percent, at 16,142.

The Standard & Poor’s 500 blue chip index fell as much as 3 percent during the day, wiping out its gains for the year in early trading with a total loss of nearly 9 percent. But it also recovered some by the end of the day, closing down 0.8 percent at 1862.

The selling got started in Europe, where major indexes plunged relentlessly and ended down more than 3 percent for the day.

Coming on top of renewed concerns about an economic slump in Europe, China and elsewhere in the world, Wall Street investors were rattled at the open of trading by news Wednesday morning of an unexpected 0.3 percent decline in retail sales and drop in wholesale inflation in the U.S. last month.

That sparked new worries about the U.S. economy, which has recently been a beacon for growth in the world economy.

“Some of the concerns about Europe and the other economies slowing down has reached our shores today with the retail sales number and the [producer price index] number,” said Scott Armiger, portfolio manager at Christiana Trust.

Government bonds also reflected deep anxiety among investors. The yield on the benchmark U.S. 10-year note slumped from 2.20 percent to below 1.91 percent in early trading Wednesday, a move of 29 basis points. As bonds prices rise, yields drop.

In overseas markets, traders also purged their investments on concerns Europe might relapse into a recession. France’s CAC 40 index sank 3.6 percent and Germany’s DAX lost 2.9 percent. Britain’s FTSE 100 fell 2.8 percent.

But it was news that a second Dallas health care worker contracted the dreaded Ebola virus that seemed to really unnerve markets, some traders said. Airline stocks were among those hit the hardest by concerns the virus could prove more disruptive to world trade and travel patterns that previously thought.

“Right now markets are reacting as though it is an epidemic and it is not,” said Randy Frederick, managing director of trading at the Schwab Center for Financial Research.

He said he is not worried about the market sell-off, and thinks it is an overreaction to the spread of Ebola, which remains mostly confined to West Africa, although sporadic cases have surfaced in Americans and Europeans who had contact with people from West Africa.

While a full-blown Ebola epidemic could potentially cripple the world economy, that has not occurred, Mr. Frederick and other analysts note, and the U.S. economy and corporate profits remain strong.

Another catalyst for Wednesday’s stock plunge was a bad earnings report from Wal-Mart, the largest retailer in the U.S., which cut its full-year sales outlook in light of disappointing spending by the lower-income consumers that frequent its stores.

Also down sharply were energy and financial stocks, which have taken a drubbing on news of a move toward recession in Europe and much slower growth in China. Premium crude oil prices plunged close to $81 in New York trading, signaling that the slump in oil prices may be accelerating into an all-out rout.

Janet Yellen, chair of the Federal Reserve, sought to soothe investors during the afternoon on Wednesday, expressing confidence that the U.S. economy is strong enough to resist slower growth in the rest of the world, in closed-door remarks reported by Bloomberg News.

Sean Darby, chief equities strategist at Jefferies, said the market slump reflects a loss of confidence that the Fed has the power to counter the emerging global economic slump, however.

It’s a “Lollapalooza moment,” he said in a note, as investors “start to unwind some of their unfettered confidence in central bank policy.”

“The U.S. economy is still holding up,” he said, citing reasons why he remains bullish and expects the stock market to rally again. “The U.S. consumer is also lined up to benefit from falling gas prices, record household wealth and improved plans for hiring. And real interest rates remain negative.”

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