Stock markets in Asia and Europe were reeling Monday amid fresh concerns over the strength of the global banking industry as HSBC announced a huge slump in profits and the U.S. government said it would pump $30 billion into ailing insurance giant AIG.
London’s FTSE dropped more than 3 percent in early trading to drop below 3,700 points — a six-year low — with banking stocks leading the slide. HSBC was down more than 10 percent after revealing a 62 percent slump in profits to $9.3 billion and plans to bolster its capital base through a $17.7 billion shares issue. Frankfurt’s DAX and Paris’ CAC were also down around 3 percent in morning trading. In Asia, Japan’s influential Nikkei average finished down 3.8 percent, while Australia’s All Ordinaries index closed down 2.8 percent. In Seoul, the KOSPI lost 4.2 percent and the Hang Seng index in Hong Kong dipped 3.8 percent. The global slump suggests Wall Street could be in for another stormy session with U.S. markets teetered on the the edge of 12-year lows after bruising sell offs Friday. The Dow Jones Industrials closed down 1.7 percent at 7,063, while the broader-based Standard and Poor’s 500 lost 2.7 percent, to finish the week at 735. The tech-heavy NASDAQ lost about a percent and closed at 1,378. All the pressure points for the economy and business are in play this week with reports or congressional hearings due on housing, consumer spending, government spending, bank rescue efforts, manufacturing and, perhaps most significantly, the labor market. How Wall Street reacts to the news will be key. Investors continue to look for signs that the market has factored in enough of the bad news to at least stabilize, if not move higher.
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“That we are at 12-year lows tells you that we are in a period of enormous uncertainty and that nobody knows where the bottom is,” said Bernard McGinn, CEO at McGinn Investment Management. “It shows that people are losing their belief in equities as a way to grow assets, and that they’d rather put their money elsewhere,” he said. It is still not bleak enough to suggest a so-called bottom is forming — at least not by contrarian standards. The S&P 500 and Dow industrials are now roughly 50 percent off their all-time highs from October 2007 and that has made some investors think that a big rally could be brewing, said Richard Sparks, senior equities analyst at Schaeffer’s Investment Research. However, the retreat could easily surpass 50 percent, and the fact that some people are optimistic about a rally starting concerns him. “That’s not what you see at a bottom,” Sparks said. “You usually see panic or apathy, and we’re not seeing either right now.” Bad news bears: Traders and technicians were discouraged Friday when the S&P 500 fell below its trading low from November 21 of last year, previously thought to be the bear market bottom. That put the S&P 500 at a nearly 12-year intraday low a few days after it made a nearly 12-year closing low.
The Dow also hit 1997 trading levels and closed at a nearly 12-year low Friday. The Nasdaq, which has held up better than the broader market, remains above its Nov. 21 lows. These technical levels will be relevant in the week ahead as investors sort through what is expected to be another barrage of rough economic news.