Wall St bears rally on weak US outlook

Trader Gregory Rowe, left, and specialist Peter Giacchi work on the floor of the New York Stock Exchange. Photo / AP

The bears were firmly in charge today, sending Wall Street and stocks in Europe lower, amid intensifying concern about the sustainability of global economic expansion.

Those worries were reflected in recommendations such as from Goldman Sachs, which said it expects the Standard & Poor's 500 Index to drop about 5 per cent from current levels. In late afternoon trading in New York, the S&P 500 index was trading 1.82 per cent lower at 1,331.07.

"With incremental US monetary policy on hold, the market will need to confront a deteriorating growth picture near term." Goldman Sachs said in a note. "We are recommending a short position in the S&P 500 index with a target of 1,285."

The Dow Jones Industrial Average was last 1.62 per cent weaker on the day, while the Nasdaq Composite Index was down 1.92 per cent.

Compounding indications of a slowdown around the globe was a survey showing that China's manufacturing industry might contract for an eighth consecutive month and that business activity across the euro zone shrank for a fifth straight month in June.

Following yesterday's downgraded expectations for US economic growth by the Federal Reserve, data released today failed to inspire confidence about the outlook.

"Markets are worried about the slowdown, not only in US figures but all around the world," Jeffrey Saut, chief investment strategist at Raymond James Financial in St. Petersburg, Florida, told Reuters. "The market was extremely overbought coming into this week, and the news gave it an excuse to sell off."

American manufacturing expanded at its most tepid pace in 11 months in June. Factory activity in the Mid-Atlantic region dropped to the lowest in 10 months this month, home resales dropped in May and the number of Americans filing new applications for unemployment benefits eased marginally last week.

"Today's numbers are ugly. The economy is in another mid-year slump, growth will struggle to breach 2 per cent and the odds are rising that the Fed will need to do more, probably as soon as its August meeting," Ryan Sweet, a senior economist at Moody's Analytics in West Chester Pennsylvania, told Reuters.

Commodities responded accordingly, as oil, gold and silver dropped amid concern the slowdown will crimp demand for raw materials.

And there's more bad news ahead.

Moody's Investors Service has told banks that later today it may announce downgrades of the credit ratings of as many as 17 lenders and securities firms with global capital markets operations, Bloomberg News reported, citing two people with knowledge of the plans. The announcement may come after the close of trading in New York today, said one of the people.

In Europe, the Stoxx 600 Index ended the session with a 0.5 per cent fall for the day.

Spain met solid demand for its debt sales today but had to pay a premium to attract investors.

The nation sold 2.2 billion euros of debt maturing in 2014, 2015 and 2017, exceeding the maximum target of 2 billion euros., according to Bloomberg. The notes maturing in April 2014 were sold at an average yield of 4.706 per cent, compared with 2.069 per cent when they were last auctioned in March. Demand for the securities was 3.97 times the amount allotted, up from 2.81 times in March.

Investors are betting the highly indebted nation will receive financial assistance to help its struggling banks survive. A private-sector report published today estimated that its banks might require up to 62 billion euros of fresh capital.