Cloud of gloom returns to Street
NEW YORK -- The doom-and-gloom crowd is back in control on Wall Street.
Investors started the week with hope following stocks' best week in five years. But the euphoria — and most of last week's gains — have been wiped out in two days amid fresh worries about a recession and tight credit.
The Dow Jones industrials Tuesday suffered their biggest point loss since Aug. 9, when mortgage and credit woes first surfaced. The Dow fell 370 points, or 2.9%, to 12,265 for a two-day drop of 478 points that erased most of last week's 536-point bounce. Tuesday's was the worst percentage drop in nearly a year.
Fueling Tuesday's slide was an indicator that showed the nation's key service sector, which includes businesses such as restaurants and retailers, in January suffered its first monthly contraction since March 2003. Investors took that as a sign that the economy is headed for recession, says Chuck Carlson, contributing editor at Dow Theory Forecasts. "We are a service-oriented economy, so when you see a weak report like that, it adds to the pile of evidence that says: If we're not in a recession, we will be soon," he says.
Risk aversion is on the rise. Investors are flocking to safer investments, such as U.S. government bonds. The yield on the 2-year Treasury note, which moves opposite its price, tumbled to 1.92% from 2.07% Tuesday — the first time below 2% in almost four years. "People want to protect their principal," says Mario DeRose, fixed income strategist at Edward Jones.
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