Wall Street registers sharpest losses since 2008, despite President Barack Obama's attempts to calm investors • European markets also falter • Tel Aviv the only global market to show gains.
Despite U.S. President Barack Obama's efforts to calm Americans and soothe turbulent markets following the downgrading of the U.S credit rating by Standard & Poor's, Wall Street on Monday registered its sharpest losses since 2008. But in contrast to global markets, Tel Aviv stocks rallied on Monday, with the stock exchange gaining 1.5 percent after dropping 7% the previous day. The Tel Aviv Stock Exchange is closed on Tuesday for Tisha B'Av.
Trading on the Tel Aviv markets opened with fluctuations on Monday due to fears over the European market's reactions to the historic downgrade of the U.S.'s AAA credit rating. However, the Tel Aviv Stock Exchange registered gains Monday afternoon, when it became clear that global markets were experiencing sharp losses, but not financial collapse. Initial indications from the U.S. also showed losses to be less than expected.
The Dow Jones industrial average fell 634 points on Monday, or 5.6%, while the S&P 500 stock index dropped 6.7%, marking the biggest retreats since the peak of the financial crisis in 2008.
Stock market volatility makes the public and investors anxious. After sources said that more than a billion shekels had been withdrawn from the Tel Aviv stock market through mutual funds, it appeared that investors would also pull hundreds of thousands of shekels out of the market Monday. If the anxiety and volatility continue within the markets in Israel and abroad, it is possible that a wave of redemptions or a change in the mix of publicly held provident funds would occur.
“It might be that investors took Tuesday's holiday into account,” one Israeli expert said on Monday. “Perhaps they simply believed that yesterday's sharp fall would be accompanied by increases today, and that the stock exchange would register gains on Wednesday.”
Meanwhile, Obama made his first public remarks on Monday following Standard & Poor’s decision Friday to downgrade his nation’s credit rating in an effort to calm nervous markets and investors.
“Our problems are eminently solvable, and we know what we have to do to solve them,” Obama said in a speech from the White House State Dining Room. “With respect to debt, our problem is not confidence in our credit. The markets continue to reaffirm our credit as among the world's safest. Our challenge is the need to tackle our deficits over the long term.
“Last week, we reached an agreement that will make historic cuts to defense and domestic spending. But there's not much further we can cut in either of those categories.” He was referring to the last-minute congressional deal to raise the U.S. debt ceiling. “What we need to do now is combine those spending cuts with two additional steps: tax reform that will ask those who can afford it to pay their fair share and modest adjustments to healthcare programs like Medicare.”
Wall Street, however, did not rush to support Obama's claim that, “No matter what some agency may say, we've always been and always will be a AAA country.”
“The American people have been through so much over the last few years, dealing with the worst recession, the biggest financial crisis since the 1930s, and they've done it with grace,” Obama continued. “They're working so hard to raise their families, and all they ask is that we work just as hard, here in this town, to make their lives a little easier. That's not too much to ask.”
Obama said that tax reform and other changes did not require radical steps, just political will and collaboration between Republicans and Democrats. “I assure you, we will stay on it until we get the job done,” he said.
Meanwhile, despite the downgrade from Standard & Poor’s, Moody’s Investors Service affirmed the U.S.’s AAA credit rating for the second time in one week. However, it said it may call for a rating cut in 2013 due to weakening “fiscal discipline” or an economic outlook that causes “adverse fiscal implications.”
Israeli stocks take a dip on Wall Street
Among the stocks to take a hit on Wall Street on Monday were Teva Pharmaceuticals, which lost 10.7% of its value, and Nochi Dankner's Cellcom, which fell 10.2%, after what analysts described as weak results for the second quarter of 2011.
One encouraging sign to emerge Monday came from oil prices, which decreased as stock prices fell. Over the course of the day, the price per barrel fell to less than $81, a drop of more than 7% since last Friday. If oil prices continue to decrease through the end of the month, gasoline prices in Israel could be reduced as well.
In contrast, gold, which has been a solid target for investors in turbulent times, rose by about 3.7% during trading to $1,709 per ounce.
Asian and European markets also saw declines ranging from 2% to 5% Monday, largely due to expectations of losses on Wall Street. Meanwhile, European Central Bank President Jean-Claude Trichet said the bank would purchase government bonds from Italy and Spain on a large scale in an attempt to subdue volatility in the markets.
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| Israel's Finance Minister Yuval Steinitz |
Finance Minister Yuval Steinitz. 'We will have to continue to work hard and act responsibly to preserve our credit rating.' | Photo credit: Dudi Vaaknin
Credit rating agency Standard & Poor's may have dropped the U.S.’s rating from AAA to AA+ last week, but Israel’s rating is holding firm and is to stay at A with a forecast of stability, the agency’s annual report said on Monday.
Standard & Poor's warned Israel three months ago that the U.S.'s perfect AAA rating might be reduced, but assured senior economic officials that Israel's credit rating would not be affected in the process. Officials in the Finance Ministry and Bank of Israel hope to see Israel's credit rating rise in the future, which would strengthen Israel's economy and allow for additional funds to be raised through government bonds.
Standard & Poor’s officials visited Israel last week to compile their annual report on Israel's economy. Their main causes for concern were the current real estate crisis, resulting from a dramatic rise in housing prices over the past few years, as well the turmoil in the Arab countries surrounding Israel. The latter, the report said, could raise Israel's security budget as new and potentially hostile regimes emerge and further destabilize the region.
Standard & Poor’s issued a number of surprising downgrades in this year's ratings. U.S. mortgage agencies Fannie Mae and Freddie Mac were downgraded from AAA to AA+. Other organizations in the U.S. dealing with long-term loans were also downgraded. Wall Street brokers told the Associated Press that the downgrades exacerbated the sharp drops in the stock market.
Economists have been speculating about which country will be next to lose its AAA rating. France, whose debt has doubled to 84.7 percent of gross domestic product since 2007, is a possible candidate. This debt has grown twice as fast as that of Italy, which is rated A+ and has a debt of 120.3 % of gross domestic product.
