Updated from 3:29 p.m. EDTStocks on Wall Street finished another day of teeth-grinding volatility with losses Friday, as forced liquidations continued and fear of a global economic slowdown intensified. The Dow Jones Industrial Average, off more than 500 points earlier, finished down 312.30 points, or 3.6%, at 8378.95, and the S&P 500 gave back 31.34 points, or 3.5%, to 876.77. The Nasdaq tumbled 51.88 points, or 3.2%, to 1552.03. Taken all together, the past five sessions have not been pretty. For the week, the Dow lost 5.4%, the S&P 500 slipped 6.8% and the Nasdaq dropped 9.3%. The selling mood was tied to belief in an impending global recession. Larry Adam, chief investment strategist at Deutsche Bank Private Wealth Management, wrote in a research note that he expects 2009 global growth to register at 1.2%, a rate that falls well below the International Monetary Fund's recession benchmark of 3%. He predicted negative growth for the U.S. and Europe in the coming year. "
Michael Strauss, chief economist and strategist at Commonfund, said that liquidations by funds needing quick capital took place overnight and contributed to a selloff in world markets. An unwinding of carry trades in the foreign exchange market played in to those declines, he said. "Obviously the U.S. got caught in some of that in the preopening," he continued. Premarket futures for the major averages hit their limit lows before the open, logging their maximum possible losses and triggering a cessation in the selling. "Maybe this is the final capitulation," said Strauss, who added that the market isn't necessarily reacting to gloomy economic data. "Everyone's expecting the numbers to be weaker. Tell me who's not expecting weaker GDP in the U.S." Considering the turmoil, Nouriel Roubini, an economics professor at New York University, believes hundreds of hedge funds could collapse and that financial markets might need to be temporarily shut down in order to stem the massive asset selling, Bloomberg reported. Volatility has reached new heights. The CBOE Volatility Index blasted off to an intraday record of 89.53 and was lately up 17% to 79.17. The credit crunch was once again in focus. Bloomberg reported that the Treasury Department was ready to invest in regional banks as part of a $250 billion effort to capitalize banks. The Treasury already dedicated $125 billion on nine of the biggest U.S. banks.
Meanwhile, U.S. equities weren't the only asset class in deep trouble during the final session of the week. Crude oil dropped $3.69 to close at $64.15 a barrel, despite an announcement by OPEC that it would reduce production by 1.5 million barrels a day in an effort to support falling prices. Gold climbed $14.40 to close at $729.10 an ounce.
After rocketing ahead in early action, longer-dated U.S Treasury securities were declining in price. The 10-year note was down 11/32, yielding 3.72%. The 30-year was losing 20/32 to yield 4.08%. Overseas, European indices, such as London's FTSE and Frankfurt's DAX, were falling sharply. In Asia, the Nikkei in Japan and the Hang Seng in Hong Kong closed with significant losses. The foreign exchange market was seeing monumental moves in some cases, with the dollar registering significant changes against its major counterparts. The euro was losing 2.1% to $1.26, and the pound was sinking 1.4% to $1.59. The Australian dollar was off 5.2% against the greenback. However, the dollar was surrendering 1.6% to the yen. Lending markets slowed a trend of loosening that had emerged in previous sessions. Three-month dollar Libor, a measure of the rate banks charge one another for large loans, was down slightly at 3.52%. The cost of overnight borrowing rose 7 points to 1.28%. In company news, PNC Financial Services ( PNC) and National City ( NCC) announced a merger agreement. PNC will buy National City for $5.2 billion, $2.23 a share in a cash-and-stock deal. PNC said that as part of the deal it sold $7.7 billion in preferred stock and related warrants to the government. PNC shares added 4.1% to $59.21, while National City plummeted 25% to $2.07.
Elsewhere, U.K. insurance firm Prudential ( PUK) was considering the purchase of segments of struggling U.S. insurer AIG ( AIG). AIG has been attempting to sell parts of its asset portfolio to avoid going bankrupt. Prudential slipped 13% to $9.20, and AIG skidded 19% to $1.70.
CNBC reported that General Motors ( GM) is ramping up discussions of a potential buyout of Chrysler's auto operations with Chrysler owner Cerberus. Cerberus has also been in talks with Nissan ( NSANY) about a potential deal. GM lost 2.5% to $5.95. Separately, Chrysler said that, on top of previously announced layoffs, buyouts and voluntary retirements, it will drop 25% of its salaried workers starting in November. As for corporate earnings, following Thursday's close software titan Microsoft ( MSFT) reported results that beat estimates but issued a cautious revenue forecast for the coming quarter. Shares ticked up 1.4% to $22.63. Fifth Third Bancorp ( FITB) shares tumbled 24% to $8.65 following a Goldman Sachs downgrade to sell from neutral. Looking at the day's economic data, the National Association of Realtors said that September existing-home sales increased 5.5% to an annualized rate of 5.18 million. Economists were expecting 4.95 million. ( Photo gallery: Trading Faces)