As the U.S. economy undergoes recession alongside the U.K. economy, and the world's second largest economy Japan, in addition to the Euro Zone economy which contracted for the first time since the ECB started its duties officially as the German economy underwent recession which is Europe's largest economy. Gloom is dominating the outlook for global growth, as seemingly all the bailout plans and the stimulus packages that were introduced failed to pull world economies from recession in which Mr. Greenspan the former Fed Chairman described as "recession fold", stock markets witnessed one of its worst years in its history, as the U.S. equity indices suffered from huge negative pressures which send stocks tumbling down the road this week, as the S&P 500 index declined yesterday 6.71% to complete its worst yearly performance as it fell so far by 49% since January this year.
The pessimistic outlook from investors led stocks down to the ground, as huge selling waves dominated this week on expectations that global growth will slump into recession, also expectations from the International Monetary Fund that world major economies will all undergo recession leading global growth to grow only by 1.00%, the IMF defines global recession as growth at or below 3.00%.
Citigroup shares declined to its lowest level in 15 years this week to lead the financial sector stocks all around the globe down even in world emerging markets, the market value for Citigroup now declined to $26 billion compared with $274 billion at the end of 2006, while their announcement of more jobs cuts as recently they said they will shed 52,000 jobs in order to cut costs, since they are being hampered by the worst financial crisis since the Great Depression which led banks and financial institutions to report losses and write downs slightly below $1 trillion at $965 billion so far, also Goldman Sachs stocks dropped below their Initial Public Offering price of $53 per share to make the market value stand at $5 billion down from $105 billion on October 31, 2007. Energy stocks fell down heavily as oil prices continued to plunge below the $50 mark per barrel for the first time since 2005 which left energy stocks under heavy fire as more expectations of global growth recession continue to weigh down on oil prices and continue to lead investors to believe that oil will drop further which might leave some oil companies in a critical situation as some might be even facing bankruptcy on rising debt.
Industrial companies also were in the same ship as everyone else, as the slowing global growth in addition to tightened credit conditions heavily affected manufacturers, while the Auto industry giants now are seeking the U.S. Congress for a share of the bailout plan which was passed to aid the financial sector, however Mr. Paulson came out to declare that the plan is strictly designed for the financial sector and not to salvage economic growth through non-financial firms, which led those firms' shares to drop heavily as well, while the services stocks didn't survive either as they also were among the stocks affected by the sell-off wave.
Among the S&P 500 companies, 483 declined more than 49% well beyond their bottom which was seen back in 2000 during the dot.com bubble, where American International Group was the worst performing company in the index, while 111 companies' stocks are currently trading below $10 per share, while General Motors failed to get financial support from the government which increased the pressure on all sectors.
Japan's NIKKIE 225 index rose at the start of this week's session from the 8383.08 level to reach its highest for the week at 8767.98 and before it reached the 8800 psychological level, the index started to decline heavily which took it down to the 7406.18 at the start of today's session which is the lowest level for the index this year since October 28, when it fell to the 6994.89 level and rebounded in today's trading from a minor support in addition to rising U.S. Futures indices, after some financial companies started to rise as well as rising oil prices which rebounded from around the $48 levels, the rise in today's trading session was rather a result of covering shorts and position squaring which took the index to rise 2.70% by the end of the Japanese trading session.
The U.K. FTSE 100 index didn't do better than its international counterparts, as ever since the index opened this week at 4193.33 it declined to reach the 3826.59 on Thursday before it started to rise back slightly during today's session, since the index fell near its lowest levels acquired back in October 27, as cheap stocks encouraged investors to start buying especially after some stocks dropped below their book value, global recession fears also weighed down on the index this week and uncertainty over the outlook for the banking sector all around the world continued to weigh down on the index, especially as Citigroup stock fell near $4 per share.
Expectations are now highlighting that the future of the U.K. economy is full of darkness, yet not as some had imagined especially after the recent data from the Bank of England which hinted that further rate reductions will be announced since some members of the Monetary Policy Committee argued for a 200 basis points cut before they announced a 150 basis points cut, this provided markets with some hope however this week have been really disastrous for the index, since it only rose on Tuesday only by 140 points from its low.
Moving on to Germany which agreed on a 50 billion euro stimulus package in addition to the 500 billion euro bailout plan for the financial sector which provided some hope, yet more sectors in Germany continue to shrink including the services and the manufacturing sectors which spreads more pessimism over the economy which contracted during the second and third quarters of this year to take the economy into its first recession since 2004 and the worst since 1970s.
A clear downside trend within a downside channel where the main resistance is located at 4400 while the 50 moving average at 4241.45 dominated Germany's DAX index with huge negativity over the week, with further expectations to see more contraction during the last three months of this year and the contraction might even extend well into 2009. The index dropped this week from its opening level at 4683.12 to set its lowest on Thursday at 4132.43 before it started to rise back supported by financial and commodity stocks during today's session to set an intraday high at 4296.86, yet those stocks were the ones to send the index down to the ground this week and the rises we saw earlier today couldn’t last and it seems it was only a result of covering shorts by investors.
France's CAC 40 index also followed the lead of other stock indices, France was the only major European economy among the Euro Zone big four to report expansion during the third quarter of this year which avoided them technical recession, however this week data from Europe highlighted that conditions in the Euro area are worsening, as both the services and manufacturing sectors both continued to contract further signaling a deepening recession for the area, and after that France was seen to follow the ongoing recessionary trend during the fourth quarter of this year, the index fell from its opening levels at 3288.76 to set its lowest at 2909.83 this week.
The European stock indices combined declined to its lowest level in five and a half years as indicated by the FTSEurofirst 300 index which dropped on Tuesday to 782.60, also the MSCI global index fell to its lowest in five and half years as well.
Moving back across the Ocean and back to the United States which witnessed another crash in major equity indices to bring back memories from early 2000s and even extended to suffer from its worst performance in history maybe, as 483 of the S&P 500 companies declined this year, affected by Citigroup shares which continued to plunge over the course of this year, while BNP Paribas which was the first bank to close funds on losses related to the U.S. sub-prime mortgages reported they will cut bounces by nearly 70% this year at its investment bank unit. The $700 billion bailout plan is now less than the total write downs and losses reported by banks and financial institutions, also Freddie Mac one of the two GSE giants which insures or guarantees half of the $12 trillion in mortgages was recommended to withdraw their stock from the exchange by NYSE, since the price have been trading below its book value for more than 30 days now.
The S&P 500 index opened this week's trading at 895.92 to set a high for the week at 916.88 before it started to tumble to close Thursday down by 6.71% at 752.44, while the Dow Jones Industrial Average 30 index opened this week's trading at 8694.83 and dropped from that point to set a low of 7506.97, while DJ Futures index declined to its lowest since March 12, 2003 at 7472.