The massive market swings began again today, sending financials reeling. Continued fears of European debt contagion and discouraging global economic reports from the U.S. to China put recession speculation back in the spotlight. Driving the conversation was a note from Morgan Stanley (MS) stating that Europe and the U.S. were “dangerously close to recession.” The note, published during afternoon trading, reduced predictions for global GDP growth to 3.9 percent for 2011 and 3.8 percent in 2012 from its earlier, more optimistic 4.2 percent and 4.5 percent levels.
Morgan Stanley pointed toward “recent policy errors in the U.S. and Europe plus the prospect of further tightening there in 2012,” as the cause for the recession. “Disappointing incoming data,” was also mentioned as a source for renewed anxiety. Thursday’s data consisted of additional evidence that U.S. home sales and manufacturing are weakening. The extent of the burden on European banks by the region's debt crisis and abating economy added to the mix.
Stanley is the latest, but not only, bank to cut forecasts for GDP growth this month. Goldman Sachs (GS), did the same in early August, when it reduced its U.S. GDP growth forecast and estimated a one-in-three likelihood of a double dip.
Sachs warnings seemed to be somewhat forgotten in the giant swings of volatility but the worries returned with force today at the reminder. The announcement did little to help shares of Stanley and Goldman, both of which tumbled today alongside other large U.S. banks.
Citigroup (C) and Bank of America Corp (BAC), both of which have continually encountered roadblocks beyond just the weak economy, tumbled sharply for the day. J.P. Morgan Chase & Co. (JPM), which has more of a cushion in terms of bad mortgage exposure also fell, but less dramatically than the others.
Wells Fargo & Co. (WFC) slid down lower as well, disappointing the bullish investors who expected the bank to recover from lows on a shorter time line than it has been.
No financial stock fell as dramatically as Moody’s Corp. (MCO); however, which tumbled sharply following the Justice Department’s announced that it would investigate whether ratings agencies sufficiently gauged the risk of mortgage-backed securities prior to the 2008 financial crisis.
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