Bad Day for Global Markets

October 22nd, 2008

The day after I wrote a piece about the Asian markets stabilizing, world markets dropped significantly again. The Dow was down almost 6% as the US market shed multiple percentage points within the first two hours of the bell ringing. Boeing, Merck, and Wachovia all posted their dismal quarterly reports that combined with already edgy investors who were skeptical of slowing worldwide growth and a deep recession - sent markets worldwide into a spiral downwards: France’s CAC40 down 5%, NIKKEI down 6.8%, Mexico down 7%, Argentina down 10%, and Australia’s S&P 200 down 3.5% - depicted in the dismal shape of the Emerginvest heat map.

An article in the NYTimes today: “Markets Fall Sharply on Weak Earnings Reports,” stated that: “The main story is that deleveraging among financial institutions is continuing,” Derek Halpenny, senior currency economist at Bank of Tokyo-Mitsubishi UFJ in London, said. “Banks worried about funding are selling assets to reduce their balance sheets.”

The wave of coordinated global bailouts has helped banks’ capital ratios, he noted, but there is a painful readjustment under way that will require some time to work through.”

The awful truth in my opinion is that after all of the bad news, common investors might have thought things were going to stabilize after the periods of upswings. While it is good to see the markets are still not in a complete freefall, the reality of a long recession is hitting investors and companies worldwide. The credit markets continue to show signs of thawing – reduced bank borrowing rates, and a falling Libor rate. However, other areas like commodity prices and continued market instability – alongside general fears of a recession have continued to scare off investors as they sense more bad news is forthcoming. A CNN Money article titled: “World Markets Drop on Worries About Economy,” stated that “With 21% of S&P 500 companies already having reported results, third-quarter profits are currently on track to have fallen almost 10% from a year ago, according to the latest estimates from Thomson Reuters.” It is scary to think that a few large quarterly reports could have been enough to initiate such a massive selloff on the jittery markets. With 79% of companies left to report this quarter, I expect continued days like today around the world.

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