August 10, 2011
By FLOYD NORRIS and CHRISTINE HAUSER
Continuing the wild swings from panicked selling to fevered buying and back, stocks soared on Thursday, leaving investors bewildered about what might come next.
In a display of wild volatility, the American stock market this week has produced alternating days of collapsing prices – accompanied by speculation of a renewed financial crisis that could be even worse than the one that began in 2008 – and sharply rising prices amid reassurances that banks are healthy and corporate profits strong.
On Thursday, the Standard & Poor’s 500-stock index soared 51.88 points, or 4.6 percent to 1,172.64. Traders pointed to a small decline in claims for unemployment insurance in the United States and to reassurances from French officials that their country’s banks were safe.
That gain recovered all of a 4.4 percent decline on Wednesday. For the two days, the index was up 0.11 points, or
one one-hundredth of 1 percent. On Monday, the market had fallen by 6.7 percent, only to leap by 4.7 percent on Tuesday. So far this week, the index is down by 2.2 percent.
“It is a very, very tense, emotional and momentum-driven market right now,” said Eric Thorne, an investment adviser at Bryn Mawr Trust, a Pennsylvania bank. The apparent motto, he added, is “shoot first, ask questions later.”
Never before in the history of the S. & P. index, which goes back to 1928, had there been alternating gains and losses of more than 4 percent on four days. In most years, there were no such days at all.
There were only two previous times since the Great Depression when the S. & P. 500 moved at least 4 percent in four consecutive trading sessions. The first came in October 1987, when the market crashed, and the second occurred in November 2008, as the financial crisis intensified. But neither of those saw alternating gains and losses. In each of those cases, the pattern was two declines, then two gains.
This year, market worries began to intensify in late July, as European leaders reached yet another agreement to provide emergency funding for Greece, which cannot borrow in the markets, and as a Congressional impasse threatened to prevent an increase in the American debt ceiling, which could have led to default. At the same time, sharp revisions in recent economic data raised concerns that the United States economy might be entering a new recession.
The worries accelerated last week, as borrowing costs shot up for two large European economies, Spain and Italy, and Friday night Standard & Poor’s credit ratings arm lowered the rating of United States Treasury bonds to AA+, from AAA.
The European Central Bank tried to calm markets by beginning to buy Italian and Spanish bonds on Monday, but then traders appeared to grow nervous about French government bonds. Those worries soon spread to French banks, which hold many such bonds, and their prices fell sharply on Wednesday.
That panic appeared to peak early Thursday morning, New York time, when a Reuters report, which did not identify its sources, said at least one bank in Asia had cut its credit lines to the major French banks and that others were reviewing their lines because of perceived risks. The French stock market, which had been about level for the day, fell more than 3 percent within an hour, and American stock index futures fell sharply.
But there was no confirmation of the report, and it was denied by both bankers and officials in Paris. Prices quickly recovered.