On Wall Street, stock prices fell again on Thursday, although not as sharply as the day before, as uncertainty prevails in the market due to the budgetary Gordian knot in the U.S. and recession in the eurozone.
The Dow Jones index slid 28 points, or 0.23 percent, to 12,542 points, while the S&P 500 weakened by 0.16 percent to 1,353 points, and the Nasdaq index fell 0.35 percent to 2,836 points.
Since the beginning of the week, the S&P 500 index has dropped about 2 percent, plunging to its lowest level in three and a half months, primarily due to investors’ fears of the ‘fiscal cliff’.
If by the end of the year Republicans and Democrats do not agree on better solutions, automatic cuts in budget expenditures and tax increases totaling about $600 billion would follow at the beginning of 2013, which could push the U.S. economy into recession.
– “There is uncertainty in the market as it is unclear how the authorities will function going forward, given the sharp divide between Republicans and Democrats. This weight is pressing down on the market,” says Troy Logan, director at Warren Financial Service.
Even if the economy avoids recession, exhausting negotiations between the White House and Congress could undermine business investments and private consumption, analysts say.
The market is also under pressure from debt problems in the eurozone, which has caused its economy to slip back into recession, the second since 2009.
The eurozone economy contracted in the third quarter, the second consecutive decline, by 0.1 percent compared to the previous quarter, while the European Union narrowly avoided recession, strengthening by 0.1 percent in the third quarter, Eurostat reported yesterday.
On an annual basis, activity in the 17-member eurozone weakened by 0.6 percent, and in the 27-member Union by 0.4 percent.
Given that Japan is also on the brink of recession and that the growth of the Chinese economy has slowed, it is hard to expect that the U.S. economy will remain unscathed.
The weakening of business conditions worldwide is also indicated by the financial reports of American companies. Indeed, in this earnings season, the quarterly results of companies have been somewhat better than expected, but expectations were very low. On the other hand, company revenues have significantly underperformed.
Among the biggest losers, with a price drop of 3.6 percent, was Wal-Mart’s stock yesterday, as the results of the largest American retail chain indicated weakness in American consumer spending.
Conversely, Target’s stock rose by 1.7 percent as the retail chain reported higher quarterly profits than anticipated.
