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US markets have worst week since recession

Thursday’s biggest one-day plunge since late 2008 – 4.

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3 percent for the Dow, 5.1 percent for the Nasdaq – took markets to 2011 lows that some mildly positive data on Friday and a fairly solid earnings season could not reverse.

The Dow Jones Industrial Average finished at 11,444.61, down 5.75 percent for the week. At that level it had lost 1.15 percent since the beginning of the year.

The broader S&P 500, just barely in the red Friday, lost 7.19 percent for the week to 1,199.38; it was 4.6 percent lower than it started the year.

The Nasdaq fared the worst: it lost nearly one percent Friday to 2,532.41 and 8.13 percent for the week. But the tech stock-heavy index was only 4.5 percent off for the year.

The week started under the cloud of the political battle over the debt ceiling — the fears that the country would be forced to default on its debts in the ceiling was not raised by August 2.

When Republicans and Democrats cobbled together a last minute deal on Tuesday, though, the markets took it with a pinch of salt.

Nor did they respond during the week to strong earnings from AIG (with the share price ending the week 12.5 percent down), Proctor & Gamble (-1.5 percent) General Motors (-5.0 percent), and Pfizer (-9.1 percent).

Newly listed Internet stocks darling Linked In looked strong in its first earnings report to the market, but was pushed down 9.6 percent.

Kraft, which announced plans to split into two companies, one for its US grocery business and the other for its global snacks portfolio, was one of the week’s survivors, adding 1.4 percent.

Financial shares were hit hard by more eurozone worries, losing 7.1 percent for the week; Bank of America shed 15.9 percent and Citigroup lost 12.8 percent.

Analysts were divided over whether the sharp selloff was justified.

“The market has been on sugar high for the past two years, whereas the real economy hasn’t got any better,” said Mace Blicksilver of Marblehead Asset Management.

“Now it becomes obvious that equities are on their own and they are done justifying their levels that said, ‘While the equity market sell-off is disconcerting, stocks have a history of sending false signals.’

“In fact, the frequently used ‘bear market’ indicator of a 20 percent drop in stock prices has occurred in as many expansions as recessions. The employment report could quell fears.”

Marc Pado of Cantor Fitzgerald forecast a light week next week until there is a little more economic data.

“The focus is going to be on Europe, which is the main trading partner for the US. So we need them to be stable if nothing else.”

Key data coming up, that might give more clarity to the economy’s direction, includes business productivity figures for the second quarter (Tuesday); a new rate announcement from the Federal Reserve (Wednesday) — expected to be unchanged; the country’s trade balance for June (Thursday); and retail sales in July (Friday).

“After a brutal week in the financial markets, investors will focus on Tuesday’s (Fed policy committee) meeting for signals of whether and how the Federal Reserve will respond,” said economists at IHS Global Insight.

“The Fed’s statement could start paving the way for QE III, which is looking increasingly likely, given the current outlook,” they said, referring to a possible new liquidity/stimulus program.

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