Wall Street stocks slumped again on Friday as worries that the US economy is heading for a recession served up the worst week for equities in more than five years.
President Bush outlined a $140bn package of tax cuts and other measures designed to provide a boost to the US economy on Friday but the plan failed to imbue the market with any confidence.
A downgrade of Ambac Financial, the bond insurer, threatened further credit market turmoil, while Sprint Nextel, the mobile phone company, added to worries about growth prospects in telecoms after subscriber numbers wilted.
The sell-off in telecoms added another member to a growing list of industry groups now in a bear market – a fall of more than 20 per cent from a market peak – joining transports, retailers, semiconductors, homebuilders and financials.
The S&P 500 fell 0.6 per cent to 1,325.19 on Friday and lost 5.4 per cent for the week, its worst weekly performance since markets were buffeted by the collapse of WorldCom in 2002. The sell-off left the index reeling at at its lowest level in almost 16 months.
The Dow Jones Industrial Average declined 4 per cent for this week to 12,099.30. The Nasdaq Composite surrendered 4.1 per cent to 2,340.02 and now stands on the verge of a bear market, a threshold already crossed this week by the Russell 2000 small-cap index, which fell 4.7 per cent to 673.16.
Tobias Levkovitch, chief US equity strategist at Citi Investment Research, said the stock market might now be suggesting a greater than 50 per cent chance of recession with “favourite sons” such as energy, commodity and industrial stocks witnessing sharp pullbacks.
