Recession Worries Bring Down Wall Street

Wall Street ended last week down 6 percent. Investors are worried that the recession will last into next year and that the economic stimulus plan will do little to speed up the recovery.

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STEVE INSKEEP, host:

It's MORNING EDITION from NPR News. Good morning. I'm Steve Inskeep.

Americans start this week knowing that the stock market is down nearly 50 percent from its peak. That's the situation after a week that even went more badly than all the other bad weeks since November. Like some other bad weeks, the market slipped during a time of worry about a giant banking company, Citigroup.

And now the Wall Street Journal says the federal government could at least be discussing another round of help for Citigroup, which is reassuring Asian markets today, although one factor in last week's market drop was concerned about exactly what form that help is going to take.

NPR's Yuki Noguchi is following this story and is in our studios. Good morning.

YUKI NOGUCHI: Good morning.

INSKEEP: What's been going wrong in the last few days that's even worse than what we already knew?

NOGUCHI: Well, a lot of things. I mean, you saw job numbers, you know, people collecting unemployment at record numbers. You saw housing starts down at a record level. You saw some kind of foul company earnings that sort of forecasted another bad year. But really, it came down to the financial sector again. That's where you saw the biggest carnage.

And the fact is this enduring question of how healthy the banks really are remains. That's the overarching problem. But the specific uncertainty last week that really drew the markets down was this question, as you say, of nationalization. Is the government going to take over the banks?

And you saw that take on some very real possibilities. I mean, it used to be a radical idea that everyone dismissed. But last week, Senate Banking Chairman Christopher Dodd was talking about that might be necessary for at least a short period of time.

INSKEEP: Although this gets into some of the contradiction here because you have a troubled banking conglomerate, and people start talking about helping it. The trouble drives down the stock, and then the talk of help drives down the stock even more if people talk about nationalization. Why would that be?

NOGUCHI: Well, it is that kind of cycle here where, you know, there's a lot of uncertainty. The markets abhor uncertainty. And, you know, I would say, though, that the White House did step in. Because the speculation was so bad, they stepped in and said, you know, we still believe in a private banking system. We have no intention of nationalizing the bank.

You know, at the same time, you mentioned the Wall Street Journal report talking about the government talking about taking up to a 40 percent stake in Citigroup. And, you know, it has a weird calming effect to know exactly what the government is going to do, and that's hopefully what we'll see more of this week.

INSKEEP: You mean, whether it works or it doesn't work, just knowing what the government is going to do is helpful (unintelligible).

NOGUCHI: Knowledge is power, yes.

INSKEEP: Okay. Well, let's talk about what's happening elsewhere in the market. It's been commonplace that Wal-Mart is almost the only stock that's doing well or one of the few stocks that are doing well. What stocks are being hammered?

NOGUCHI: Well, it's pretty broad based as this point. I mean, although this downturn started in the housing sector and in the financial sector, you're seeing a lot of things being hit. Last week, Hewlett-Packard said that it's forecasting, you know, a worse-than-expected year. And so you're seeing it bleed into other industries - manufacturing, of course. Construction, of course.

So, you know, today - this week you'll see, you know, the health of the economy as gauged by earnings from retailers like Nordstrom's and Saks and even Campbell Soup. And so, you know, it'll give us a chance to see exactly what the health of the - how the health of the economy is being affected. And we'll also see data from the consumer confidence numbers and from the home sales. So it'll be a chance to see how the rest of the economy is faring.

INSKEEP: For almost a year and a half now, people have been asking: When does the market hit bottom? Where's the bottom? Where's the bottom? Is it possible we're getting close to that now that the market is in the 7,000s?

NOGUCHI: You know, I really just - I've stopped predicting these things.

(Soundbite of laughter)

NOGUCHI: I think a lot of people have just stopped because it's a hard thing to gauge, especially when it's a moving target. And that's what really hard about this economy. You know, you have people still losing jobs, and that has sort of a cyclical effect on the housing market. So, you know, it's a feedback loop, and nobody knows where the feedback stops.

INSKEEP: Yuki, thanks very much.

NOGUCHI: Thank you.

INSKEEP: That's NPR's Yuki Noguchi.

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