All eyes on Dow after 513-point drop


ASSOCIATED PRESS

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Traders show their frustration as they work on the floor of the New York Stock Exchange on Thursday. The Dow dropped 4.3 percent to close at 11383.68.

By Karl Henkel

khenkel@vindy.com

YOUNGSTOWN

Debt-ceiling deal? Compromise.

Domestic spending? Cut.

Stock market? Crashed.

Despite avoiding what many called “economic Armageddon” by avoiding default earlier this week, the stock market plunged 513 points Thursday — its worst single day since Dec. 1, 2008, and analysts said there’s a possibility of another free fall today.

“People tend to be sheep,” said John Reese, president of Reese Financial Services in Boardman.

“People buy in greed and sell in fear. That’s the reason why Las Vegas casinos have beautiful marble floors and posh carpeting,” he said.

Thursday’s fall of the Dow Jones Industrial Average was a result of weak global economies, said Anthony Stocks, former economics chairman at Youngstown State University.

“We’ve got problems all over the world; in Europe and even in Asia, it’s starting to get weak,” Stocks said. “Because of the global marketplace, fear spread very quickly from one country to another.”

The plummet came just a day after it snapped an eight-day losing streak during which it lost more than 700 points, driven mostly by independent investors who feared big stock-market plunges if the U.S. defaulted on its financial obligations. The Dow now has fallen more than 1,300 points, or 10.5 percent, since July 21.

But unlike last week, when financial experts pointed to individual investors as the reason for the smaller-yet-chunky daily market drops, the 512-point drop signaled the impact of bigger market players.

“The Dow is driven by two huge factions,” Reese said. “It’s the individual investors and the big institutional dollars, which aren’t run by humans — they’re run by machines.

“If the Dow does this, the machine does that.”

The sell-off was broad. All 10 industry groups in the Standard & Poor’s 500 index fell. Energy companies lost almost 7 percent, materials companies were down 6.6 percent and industrial companies lost more than 5 percent.

But why now?

The recent GDP report showed the economy is growing at a slower-than-expected rate.

Consumers spent less in June than they did in May, the first slip since September 2009.

Unemployment remains at 9.2 percent.

All three and the stock plunge have some leaders, including Ohio Gov. John Kasich, worried.

“I’m concerned about it,” Kasich said Thursday. “What’s been happening here over the last couple of days borders on alarming. ... The market is reflecting a lack of confidence [and businesses] not being willing to invest because of uncertainty, not bringing the workers on. At the same time ... consumers have gotten very nervous when they watch developments in Washington.”

Kasich said a contributing factor is that businesses aren’t investing in expansions and consumers aren’t spending.

“They’re sitting on cash because they don’t feel really comfortable investing,” he said. “And the problem is until they invest, which includes hiring workers, the cycle doesn’t get moving.”

Fears over another economic collapse and ensuing double-dip recession are not out of the question.

“That could happen, but eventually markets do stabilize,” said Stocks, who said continuing fear could play a factor in the coming days. “This market will move in the same direction, but who knows how far is down?”

On Dec. 2, 2008, the day after the Dow lost 677 points, it regained 270.

Columbus Bureau Chief Marc Kovac and Associated Press contributed to this report.

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