FOX Business: The Power to Prosper
Fears over the financial impact of the hurricane that is forecast to barrel up the Eastern seaboard this weekend, coupled with dreary economic sentiment, sparked a broad selloff that snapped a three-day winning streak for Wall Street.
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The Dow Jones Industrial Average dropped 171 points, or 1.5%, to 11,150, the S&P 500 slid 18.3 points, or 1.6%, 1,159 and the Nasdaq Composite tumbled 48.1 points, or 2%, to 2,420. The FOX 50 dipped 9.6 points to 843.
Travelers (NYSE:TRV) was the worst-performing issue on the Dow, and other big-name insurers Chubb (NYSE:CB) fell considerably amid concerns hurricane Irene, which is forecast to make landfall this weekend, could make a financial splash. Other companies that have exposure to areas on the East coast that are expected to be slammed, such as retailer SuperValu (NYSE:SVU) took hits as well.
Technology stocks like Oracle (NASDAQ:ORCL) and utilities such as FirstEnergy (NYSE:FE) were under pressure on the day too.
One bright spot was Bank of America (NYSE:BAC) which had seen its shares plunge close to 30% since the beginning of August amid concerns the bank may need to raise a substantial amount of capital. However, Berkshire Hathaway made a major vote of confidence in the country's biggest bank by assets by purchasing $5 billion worth of preferred shares at a considerable 6% dividend in a private offering and acquiring warrants to buy 700 million shares of common stock. Indeed, the bank was one of two Dow components to close in the green.
"Bank of America is a strong, well-led company," said Berkshire Hathaway Chief Executive Officer Warren Buffett. "I am impressed with the profit-generating abilities of this franchise, and that they are acting aggressively to put their challenges behind them."
Buffet also expressed confidence that the bank has a strong liquidity and capital position. The cost of insuring the bank's debt against default pulled back, indicating market participants were more hopeful about Bank of America's prospects. Conviction in the buying was strong, with volume reaching 854 million shares -- the highest since December 2009.
Lingering Economic Malaise
With European market turmoil fading from the picture this week, Wall Street has focused heavily on the global economy, which, while recovering, has hit a soft patch.
The International Monetary Fund sees global economic output becoming weaker and more uneven, causing a deterioration in its economic output, according to a report by Reuters. However, in contrast, Kansas Federal Reserve President Thomas Hoenig told FOX Business that he predicts "slow, steady growth" for the U.S. economy.
Initial claims for unemployment benefits rose to 417,000 last week, from a prior reading of 412,000. The strike at Verizon added at least 8,500 claims, the Labor Department said. Weekly jobless claims have been hovering about the 400,000-level for weeks, which has added further evidence to the thesis that the labor market is improving at a very slow pace:
"We see recent initial jobless claims reports as indicative that firms have not started laying off in response to recent market volatility; however, we suspect that they have put hiring plans on hold," economists at Nomura wrote in a research note.
Continuing claims, however, fell to 3.64 million from 3.72 million -- the lowest level since September 2008.
Market participants are also keeping a close eye on Jackson Hole, Wyoming, where Federal Reserve Chairman Ben Bernanke is set to make a speech on Friday. There has been speculation that the central bank may unleash another round of quantitative easing in a bid to buoy the economy.
"Following the sharp deterioration in the economic outlook, we now see a greater-than-even chance that the Federal Open Market Committee will resume quantitative easing later this year or in early 2012," economists at Goldman Sachs wrote in a note to clients.
The last round of easing, referred to as QE2, ended in June, and is generally seen by economists to have loosened very tight financial conditions, and helped boost economic expansion.
Gold, which made its biggest plunge on a percentage basis since 2008 in the prior session, was modestly higher. The precious metal rose $5.70, or 0.32%, to $1,760 a troy ounce.
Energy markets were in the green. The greenback gained 0.24% against a basket of world currencies, while the euro fell 0.29%.
Light, sweet crude climbed 14 cents, or 0.16%, to $85.30 a barrel. Wholesale RBOB gasoline soared 8 cents, or 3.1%, to $2.97 a gallon.
Apple (NASDAQ:AAPL) Chief Executive Officer Steve Jobs resigned from his post, and announced Chief Operating Officer Tim Cook would replace him. Jobs had shepherded the technology behemoth from the brink of bankruptcy to being on the the world's biggest companies; however, technology analysts remained bullish on the company's future prospects.
The English FTSE 100 fell 1.4% to 5,131, the French CAC 40 dipped 0.65% to 3,119 and the German DAX slid 1.7% to 5,584.
In Asia, the Japanese Nikkei 225 jumped 1.5% 8,772 and the Chinese Hang Seng climbed 1.5% to 19,753.