Stocks on Wall Street fell sharply on Thursday, following the trend set in Asia and Europe as more disappointing economic data emerged and concerns again focused on the financial sector. Here are five things to know about the market drop:
1 What was the trigger? There was no single trigger for the market plunge, rather it was sparked by a spate of gloomy numbers and the return of panic selling reawakened fears of another recession. Bleak numbers for U.S. jobs, housing and manufacturing compounded the anxiety over European woes, rattling share prices in every industry, and indicated again that the economic recovery remains fragile.
2 How did the markets close? All three major stock indices more than wiped out their gains from earlier this week. For the year, the Dow Jones industrial average is down 5 percent, the Standard & Poor's 500-stock index is down 9 percent, and the Nasdaq is down 10 percent. And the sell-off continued in Asian markets early Friday.
3 What were the bleak national numbers? Data from the National Association of Realtors, a trade group, showed sales of existing homes fell 3.5 percent in July to 4.67 million, the lowest rate in eight months. Economists had been expecting sales closer to 5 million. And the latest figures on unemployment, considered another key piece in any recovery, also proved disconcerting. The Labor Department said that weekly unemployment benefits again rose above the 400,000 level last week, a benchmark figure that many economists take as a sign of a declining economic trajectory.
4 What was the biggest factor? Economists said Thursday had more to do with signs of worsening conditions in Europe. Major European bank stocks ranked among the biggest losers as investors showed their doubts about their health and the continued debt crises on the continent. The stability of the European banking system has been a persistent concern.
5 What's the trouble with European banks? Progress in stabilizing its banking system has been slow. The 17 banking systems are overseen by 17 countries, each with their own problems, such as bad housing loans made by Spain's "cajas," or savings banks; the overseas investments of Germany's regional Landesbank; and an Irish banking system that grew to be several times larger than the country's economy. An analysis in July showed that the capital buffers of 21 of 90 banks studied would, in another economic downturn, fall below or close to what was considered a safe level. Some major ones cleared the threshold only narrowly. Bank investments in government bonds, meanwhile, remain a major source of doubt. Banks in France, Germany and elsewhere hold tens of billions of dollars of government debt that might not be worth what they paid for it. The holdings can be sizable. Data released as part of the stress test said French bank Societe Generale, for example, holds $2.8 billion of Greek bonds, $4.7 billion of Spanish bonds, $8.8 billion of Italian bonds and nearly $20 billion of French bonds. In Thursday's trading, shares of Societe Generale shed more than 12 percent; its peers Credit Agricole and BNP Paribas were each down about 7 percent. In Germany, investors sheared 10 percent off of CommerzBank and nearly 7 percent off Deutsche Bank. Italy's UniCredit was down 7 percent. The slump in European banking led to a similar sell-off in the United States.