Finally, Some Good News for the US Stock Market

It's closed today.

That's about the only "good" news in US stocks in the last few months, as this article from Friday's NYT explained:

While the chairman of the Federal Reserve told Congress on Thursday that a recession can be averted, Wall Street sent Washington a different message: it’s already here.

The Dow Jones industrial average plunged 306 points, capping a 14.2 percent slide from its all-time high in October. After 12 days of trading, the broader Standard & Poor’s 500-stock index is off to its worst January on record. And the Russell 2000 index, which tracks small companies, sank into a bear market.

[...]

Corrections of this magnitude have coincided with recessions in the past, though not always. In 1990, a steep sell-off presaged a downturn, while a similar drop in 1998 came and went with no apparent effect on the broader economy.

But the stock market isn’t the only part of the financial world that is pointing to trouble. The Baltic Dry index, a shipping index that is considered a leading indicator on the health of the global economy, has plummeted. And investors have fled high-risk corporate bonds, which can default in times of trouble.

And a troubling trend is emerging in the S.& P. 500. Shares of energy and materials companies, the top performers last year, have fallen to the bottom of the pack. Investors appear to be betting that those sectors will be hurt by a coming downturn, and are looking to get out. [Emphasis added]

Banks are posting massive losses, partly because of their exposure to the sub-prime lending fiasco.  Housing starts are at a 16 year low.  You've heard about the foreclosure crisis.  And since peaking in October, stocks have lost 15% of their value.  

So it's understandable that everyone in Washington is now talking about the need for an economic stimulus plan.  And sure enough, on Friday Bush announced a $150 billion plan, which garnered initial praise from Democrats.  

The result?  

Asian and European markets nose-dived on Monday as hope that healthy local economies might escape the force of a United States recession evaporated and fear gripped investors instead.

Blue chip stocks lead the declines in most markets, dragging major indexes in Hong Kong, Shanghai and India down by more than 5 percent during the day, while those in South Korea and Australia fell by nearly 3 percent.

In Japan, which may be facing a new recession of its own, most indexes were off by more than 3 percent.

European shares sank 4 percent by late morning on Monday, putting them on track for their biggest one-day fall in more than four and a half years as fears of a recession in the United States rattled investors.

The drops in Hong Kong and London were the biggest since September 11, 2001.  

Why these collapses?  

"It's another horrible day," said Francis Lun of Fulbright Securities in Hong Kong.

"Today it's because of disappointment that the US stimulus is too little, too late and investors feel it won't help the economy recover."

[...]

The worry is that tax breaks and spending measures will do little to boost consumer spending in the US because of problems in the housing market.

Many shoppers are struggling under higher mortgage repayment costs, and default rates have surged.

At the same time, banks have had to become more careful about who they lend to because they have lost billions of pounds on investments linked to the US housing and mortgage markets.  

[...]

So far this year, Japan's Nikkei has dropped 13% percent, the Hang Seng is down more than 14%, and China's main Shanghai index has slipped almost 7%.

More parallels between the elections of 1932 and 2008?