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Stocks up again; worries remain

Losses in uncertain market could stall economy further

Yesterday’s closing bell at the New York Stock Exchange punctuated four days of wild swings. Yesterday’s closing bell at the New York Stock Exchange punctuated four days of wild swings. (Stan Honda/AFP/Getty Images)
By Beth Healy
Globe Staff / August 12, 2011

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Wall Street continued its dizzying week yesterday, as stocks rallied 423 points after taking a steep dive on Wednesday. A slightly improved jobs report that sparked the gain was not enough to ease longer-term worries about the economy here and worldwide.

The Dow Jones industrial average jumped nearly 4 percent to 11,143.31, in a record fourth consecutive day of 400-plus-point swings.

Analysts said the dramatic ups and downs reflect investors’ confusion over where the global economy is headed, and how modest news such as yesterday’s numbers on unemployment claims can have an outsize impact on trading.

“The volatility in the stock market is itself a reflection of fear, uncertainty,’’ said Robert Pollin, codirector of the Political Economy Research Institute at the University of Massachusetts Amherst. “There’s a lot of underlying weakness in the economy.’’

All week, investors have reacted strongly to vague clues about the future. Yesterday, they appeared to take some comfort in news that the number of people filing for unemployment benefits in July fell below 400,000 for the first time in four months. But there was no strong sense the trend would persist. Nor is it clear where new jobs the country needs to spur growth might come from in such an unsettled economic and political climate.

“This economy is really in for a tough little ride here, and Washington hasn’t helped at all,’’ said John Hailer, chief executive of Natixis Global Asset Management in Boston. “Until you get job creation going, we could be in this for a while.’’

Even for veteran Wall Street watchers it has been a challenge to keep up with the Dow’s movements, never mind sort out what they mean. The average plummeted 634 points Monday, rose 429 points Tuesday, and fell 519 points Wednesday.

Even with yesterday’s gain, the index was nearly 3 percent for the week, and has dropped 12 percent since July 22.

The stock market losses themselves are likely to further stall the economy, as businesses and individuals assess the damage. For people saving for retirement or college tuition, next month’s portfolio statements might be better left unopened. Throughout the tumult, money managers have been urging individual investors to stay the course and to think long-term.

Pollin said stock declines are “certainly going to contribute to risk aversion - to people being scared to make big moves.’’ Companies will remain cautious about hiring, he said, and banks will continue to sit on $1.4 trillion in cash, believing it is too risky to lend much money.

With economic growth in the second quarter an unimpressive 1.3 percent, this recovery could be the weakest since World War II, according to a report by Allen Sinai of Decision Economics, an analysis firm in New York. He put the odds of a double-dip recession at one in four.

The concerns and downbeat forecasts were tempered yesterday by Cisco Systems Inc., the networking equipment giant, which posted stronger financial results than expected. That helped lead the technology-heavy Nasdaq index up 4.7 percent for the day, to 2,492.68. The Standard & Poor’s 500 index climbed 4.6 percent, to 1,172.64.

But economists and investors said there is nothing obvious on the horizon to warrant a sunnier outlook. There is little political momentum to address the domestic debt problem. And many people are concerned that Europe’s crushing debt could threaten banks there in a fashion comparable to what happened in 2008 in the United States.

On Wednesday, European bank stocks were battered, and pressure on France mounted as the country faced a possible downgrade of its AAA credit rating. Last week, Standard & Poor’s downgrade of US debt led to the market’s sharp drop on Monday.

“In the US, we’re in a slowdown,’’ said Todd Millay, of Choate Wealth Management Group in Boston. “In terms of what could be the next systemic crisis, to me it’s the European banking crisis.’’

Beth Healy can be reached at bhealy@globe.com.

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