Tuesday, June 23, 2009
NEW YORK (AP) — A surprisingly bleak forecast for the world economy pushed stocks to their biggest loss in two months.
Major stock indexes tumbled by more than 2 percent Monday, sending the Dow Jones industrial average down nearly 201 points, after the World Bank estimated the global economy will shrink 2.9 percent in 2009. It previously predicted a 1.7 percent contraction.
The grim assessment was the latest unwelcome surprise for the market since last month and further eroded hopes that the economy was starting to emerge from recession. Investors began driving stocks sharply higher in early March, encouraged by modest improvements in housing, manufacturing and even unemployment.
The dampened economic outlook from the World Bank, a global lender based in Washington, also weighed on the prices of oil, metals and other commodities. Those price drops in turn sent energy and metal producers’ shares falling.
Hugh Johnson, chief investment officer of Johnson Illington Advisors, said the downbeat economic prediction confirmed fears that have been building in the market for two weeks.
“The forecast by the World Bank just dramatized that the market may have overstated what’s coming for the economy,” he said.
The stock market is coming off its first weekly loss in more than a month after mixed economic readings last week.
Investors have gone from enjoying a string of better-than-expected economic data to trying to manage a list of worries about the economy.
Stocks have lost ground several times in the last month on fears that rising interest rates and inflation would upend an economic recovery.
Many analysts also say the relief that erupted in early March about the economy then led to outsize expectations for how quickly a recovery could occur. Other economic news has hit stocks since May.
A disappointing government report last month on retail sales suggested the economy remained fragile, and the Federal Reserve reined in its expectations for how the economy will fare this year.
Traders will get reports this week on new- and existing-home sales, durable-goods orders, gross domestic product and personal incomes and spending.
The Federal Reserve also will be in the spotlight after its two-day meeting on monetary policy ends Wednesday. The central bank is widely expected to hold its key funds rate steady near zero, but investors want to know whether policymakers will say the economy is recovering or still in need of aid.
The Dow fell 200.72, or 2.4 percent, to 8,339.01, its lowest finish since May 27. It was the biggest drop for the blue chips since losing 290 points, or 3.6 percent, on April 20 as investors worried about the soundness of bank balance sheets.
The Dow has fallen for five of the last six days and remains down for June.
The Standard & Poor’s 500 index fell 28.19, or 3.1 percent, to 893.04, also leaving the index with its biggest slide since April 20 and erasing its advance for the year. The Nasdaq composite index fell 61.28, or 3.4 percent, to 1,766.19.
After Monday’s drop and a 3 percent slide last week, the Dow is down 5 percent for the year. The Nasdaq, however, remains up by 12 percent in 2009.
Bond prices jumped Monday, pushing yields down, as the drop in stocks drove demand for the safety of government debt. The yield on the benchmark 10-year Treasury note sank to 3.69 percent from 3.78 percent late Friday.