U.S. stocks played catch-up with their overseas counterparts Friday as Dubai’s worrisome debt problems fueled concerns that the global economic recovery is still on a shaky ground. Apprehensions that the crisis in the Persian Gulf city-sate could have far-reaching implications resulted in steep sell-offs in the last two days of the week, sending benchmark indexes from Asia to Europe sharply lower.
Markets across the globe took a sharp hit last week after Dubai World, the main development engine of the emirate’s spectacular economic growth, said Wednesday it was asking creditors to agree to standstill on billions of dollars of debt.
In a thinly traded session on Friday, the 30-stock Dow Jones industrial average slumped 154.48 points, or 1.48%, to 10,309.92. The broad Standard & Poor’s 500-stock index retreated 19.14 points, or 1.72%, to 1,091.49. The tech-laden Nasdaq composite index lost 37.61 points, or 1.73%, to 2,138.44. On the New York Stock Exchange, advancing issues beat those that declined by a six-to-one margin, on volume of 655 million shares. The stock market closed at 1 p.m. Friday.
As world markets reeled under fears of the possibility of a sovereign default, oil prices fell to six-week lows of $73.82, off $4.14 on Friday; gold prices fell $24.60 to $1164. A desire for the safety of higher-quality investments sent the US dollar and US Treasuries higher on Friday, with the yield on the 10-year declining to 3.21% from 3.27% on Wednesday.
So far this year the major US indices have been on a run, thanks to government’s stimulus measures and record low interest rates spurring investors’ desires for higher returns from riskier investments. This year, the DJIA has gained 17.5%, the S&P500 20.8%, and the NASDAQ is up 35.6%.
According to banking analyst Richard Bove, American banks may benefit from their “minimal exposure” to Dubai, as well as a more vigilant regulatory environment in the US. A Credit Suisse (NYSE:CS) research note placed the exposure of European banks at $19.5 billion; however, Credit Suisse (NYSE:CS) itself noted its exposure as “minimal.”
Nevertheless, market participants are concerned that Dubai’s troubles would make access to credit, which has been improving in recent months, relatively difficult as banks become more cautious. Many on the Street were worried that any lending squeeze could hurt the economic recovery.
Meanwhile, with the unofficial start of the US holiday shopping season, investors are expected to closely scrutinize US retail sales before making further moves. According to the National Retail Federation survey 195 million shoppers hit the stores, up from 172 million last year; however the average amount spent dropped to about $343 from $373 last year. According to comScore, Black Friday’s online shopping activity increased 11% from a year earlier. But more shoppers utilized cash for payments; and traditionally, consumers spend more per item using credit cards than cash. A Shop.org survey indicates 96.5 million plan to make purchases today, up from 85 million a year ago.
