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Big US slump ends volatile week | Big US slump ends volatile week |
(3 days later) | |
US stock markets fell heavily on Friday after a wild and volatile week. | US stock markets fell heavily on Friday after a wild and volatile week. |
The Dow Jones, which saw triple digit gains on Wednesday and Thursday, fell by 2.1%, 284.8 points, to 13,178.5. The Nasdaq lost 2.5% to 2,511.25 points. | The Dow Jones, which saw triple digit gains on Wednesday and Thursday, fell by 2.1%, 284.8 points, to 13,178.5. The Nasdaq lost 2.5% to 2,511.25 points. |
Selling was driven by continuing concerns over financial institutions, especially sub-prime lenders, and its knock-on effect to the credit market. | Selling was driven by continuing concerns over financial institutions, especially sub-prime lenders, and its knock-on effect to the credit market. |
A Bear Stearns top executive said that credit markets were in the worst turmoil he had seen in 22 years. | A Bear Stearns top executive said that credit markets were in the worst turmoil he had seen in 22 years. |
"These times are pretty significant," said Sam Molinaro, the investment bank's chief financial officer. | "These times are pretty significant," said Sam Molinaro, the investment bank's chief financial officer. |
There is not going to be one sort of clear signal that suggests everything is OK Mike MaloneAnalyst Are world market bubbles set to blow? | There is not going to be one sort of clear signal that suggests everything is OK Mike MaloneAnalyst Are world market bubbles set to blow? |
His comments reinvigorated the market's fears that a credit squeeze will end an era of cheap funding for corporate takeovers. | His comments reinvigorated the market's fears that a credit squeeze will end an era of cheap funding for corporate takeovers. |
Despite Friday's heavy falls, the Dow Jones only lost 0.5% over the week. | Despite Friday's heavy falls, the Dow Jones only lost 0.5% over the week. |
A week earlier, Wall Street saw its worst five days of trading in four years. | A week earlier, Wall Street saw its worst five days of trading in four years. |
Housing slump widening? | Housing slump widening? |
Equity markets have been concerned for some time that the problems affecting the US housing market will grow into a credit crunch that will hit the wider economy. | Equity markets have been concerned for some time that the problems affecting the US housing market will grow into a credit crunch that will hit the wider economy. |
The sub-prime mortgage market, which offers high interest loans to higher risk customers or people on low incomes, has suffered as the US central bank - like many others - has increased interest rates to curb inflation. | The sub-prime mortgage market, which offers high interest loans to higher risk customers or people on low incomes, has suffered as the US central bank - like many others - has increased interest rates to curb inflation. |
This has resulted in record numbers of defaults in the past year, and dented investor enthusiasm for financial companies that have exposure to the industry. | This has resulted in record numbers of defaults in the past year, and dented investor enthusiasm for financial companies that have exposure to the industry. |
Higher interest rates have also made it more expensive and thus difficult for private equity groups to continue to finance buyouts. | Higher interest rates have also made it more expensive and thus difficult for private equity groups to continue to finance buyouts. |
This has led to concerns that the takeover boom that has been a critical driver of stock market performance over the past few years could fizzle out. | This has led to concerns that the takeover boom that has been a critical driver of stock market performance over the past few years could fizzle out. |
"I think there is a tremendous amount of uncertainty with regard to the credit markets and how the situation will ultimately settle," said Mike Malone, trading analyst at Cowen & Co. | "I think there is a tremendous amount of uncertainty with regard to the credit markets and how the situation will ultimately settle," said Mike Malone, trading analyst at Cowen & Co. |
Volatility has hit markets around the world | Volatility has hit markets around the world |
"There is not going to be one sort of clear signal that suggests everything is okay. I think it's going to take time and the equity markets are going to experience heightened volatility." | "There is not going to be one sort of clear signal that suggests everything is okay. I think it's going to take time and the equity markets are going to experience heightened volatility." |
Shares in big home lenders, including Countrywide Financial and Washington Mutual, fell by more than 6% on Friday | Shares in big home lenders, including Countrywide Financial and Washington Mutual, fell by more than 6% on Friday |
And Accredited Home Mortgages saw its shares fall 31% after it announced plans to close down most of its operations, making it one of the biggest casualties of the US housing slump. | And Accredited Home Mortgages saw its shares fall 31% after it announced plans to close down most of its operations, making it one of the biggest casualties of the US housing slump. |
Its problems suggest the housing slump is widening because it is not a sub-prime lender. | Its problems suggest the housing slump is widening because it is not a sub-prime lender. |
Global markets have all seen volatility in the past fortnight. | Global markets have all seen volatility in the past fortnight. |
The London market beat a retreat on Friday as weaker-than-expected US employment figures concerned traders. | The London market beat a retreat on Friday as weaker-than-expected US employment figures concerned traders. |
The FTSE 100 index closed down 1.2% at 6,224.3 while French and German markets fell by similar number of percentage points. |
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