Global Stock Markets Between Hope and Poor Economic Indicators

Last week, leading indices on global stock markets fluctuated significantly, depending on whether optimism regarding the revival of the world’s largest economies or concern over new data indicating a strengthening recession prevailed in the market.

On Wall Street last week, the Dow Jones index fell by 0.95 percent to 8,000 points. The S&P 500 index decreased by 0.73 percent to 825 points, while the Nasdaq index lost a meager 0.06 percent, diving to 1,476 points.

At the beginning of last week, stock prices on Wall Street and other global exchanges rose due to investor hopes that President Barack Obama’s proposed $825 billion economic stimulus package would be quickly approved by Congress. The House of Representatives passed this package of measures, which is expected to create up to 4 million new jobs, and the Senate will discuss it next week. The completion of the process in both houses and the signing of the law is expected by mid-February.

Among the biggest winners was the financial sector, thanks to the U.S. government’s plan to create a ‘bad bank’, an institution that would buy up bad assets from banks, improving their balance sheets and freeing up resources for lending to individuals and companies. Thanks to optimism regarding government efforts to stabilize banks and curb the recession, investors overlooked news of weaker-than-expected business results from companies like Qualcomm, a mobile chip manufacturer, Starbucks coffee chain, and Allstate, one of the largest insurance companies in the U.S.

However, by the end of the week, a wave of concerning macroeconomic news emerged, indicating a strengthening recession in the U.S. economy that investors could no longer ignore. It was reported that U.S. gross domestic product fell by 3.8 percent year-on-year in the last quarter of last year, marking its largest decline since the first three months of 1982.

Numerous other data indicate that it will take a long time before the end of the recession in the U.S. economy, which has lasted for 14 months. The number of Americans seeking unemployment assistance reached 4.78 million last week, the highest since 1968, when these data began to be collected, and many companies have also announced further layoffs. For example, Starbucks announced 7,000 layoffs, Eastman Kodak between 3,500 and 4,500, Allstate 1,000… Additionally, there are still no signs of stabilization in the real estate market. New home sales fell by 14.7 percent in December last year to a record low level.

"All troubles began with the crisis in the real estate market, and that crisis, it seems, continues. As for the financial crisis, it seems that the worst is over, but now we are faced with a synchronized global recession," says Nathan Rowader, investment director at Forward Management. Throughout January, the Dow Jones index plummeted by 8.8 percent, and the S&P by 8.6 percent, marking their largest January decline in history. The Nasdaq index lost 6.4 percent. The movement of indices in January is traditionally considered a fairly reliable indicator of stock price movements for the entire year.

On European stock markets, however, stock prices rose last week. The London FTSE index jumped by 2.39 percent to 4,149 points, while the DAX index of the Frankfurt Stock Exchange gained 3.8 percent, reaching 4,338 points. On the Tokyo Stock Exchange, the Nikkei index rose by 3.2 percent last week to 7,994 points, the lowest level in two months. (Hina)