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Wall Street's plunge: Is the economy heading for more turbulence?
U.S. stock markets have lost a total of $500 billion in the past few days, suggesting that tough times are on the horizon
 
Traders work on the floor of the New York Stock Exchange on Oct. 23: Dow companies are being dragged down by slowing economic growth in China. 

Traders work on the floor of the New York Stock Exchange on Oct. 23: Dow companies are being dragged down by slowing economic growth in China. 

Mario Tama/Getty Images

Only a few weeks ago, the Dow Jones Industrial Average attained a five-year high, riding a euphoric wave that started when the Federal Reserve announced new stimulus measures for the economy. However, the Dow has since fallen back to earth — and hard. The index is down 4 percent from the beginning of October, and U.S. stock markets have lost a total of $500 billion in value in the past three trading days alone. What happened? Poor earnings reports from a slate of bellwether companies, say Jonathan Chenge, Kate Linebaugh, and James R. Hagerty at The Wall Street Journal:

Companies from Google and Caterpillar to DuPont and United Parcel Service have disappointed investors with lackluster earnings or forecasts, fueling fears the global economic recovery isn't as robust as once thought…

Tuesday was a case in point, with executives of all stripes saying they expect more months of faltering demand before the weak global economy starts to turn around. Some announced new rounds of layoffs and factory closures, underlining the challenges facing global corporations.

In particular, companies are being dragged down by slowing economic growth in China and various recessions in Europe. The renewed pessimism in corporate America is coming at the worst time. "After years of wariness, consumers are feeling more buoyant," say Nelson D. Schwartz and Nathaniel Popper at The New York Times:

Consumer confidence is at its highest point since before the financial crisis. The housing market is showing signs of life. And retail sales actually sped up in the third quarter, fueling the hopes of retailers for a robust holiday season. 

"Normally, you think of consumer confidence as more important," said Ethan Harris, chief United States economist at Bank of America Merrill Lynch. “But the business sector is a quarter or two ahead this time."

So is it certain that the U.S. economy is heading for a rocky period? Not necessarily. A new report showing a strong rebound in Chinese manufacturing has already lifted Wall Street's spirits. But the never-ending European debt crisis is a real problem. European officials "have not yet figured out long-term solutions to their problems or even short-term solutions to their economic disaster," says Mark Gongloff at The Huffington Post. "Until they do, we can expect weaker growth in the U.S. and around the world, along with occasional stock-market mini-panic. Good times."

 

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