U.S. stocks may lose around 4% as recession fears grow - MarketWatch
LONDON (MarketWatch) -- U.S. stocks may enter a bear market on Tuesday, with stock futures pointing to losses of roughly 4% after two days of huge selling in overseas markets on fears over a U.S. recession.
Though off session lows, futures were pointing to early pain: S&P 500 futures dropped 56.2 points to 1,269.10 and Nasdaq 100 futures dropped 70.5 points to 1,779.00. Futures on the Dow Jones Industrial Average dropped 478 points.
The declines in overseas markets were steeper. Over two days, the Nikkei 225 dropped over 10% in Tokyo, and the DAX-30 fell about 8% in Germany.
While some parallels are being drawn between the crash of 1987 and today, the Dow would have to lose more than 2,700 points to match the percentage loss back then, notes Mark Hulbert.
But U.S. markets are in danger of entering bear-market territory - a loss of over 20% from highs -- as several overseas indexes have done.
Heading into Tuesday, the S&P 500 is nearly 16% below 2007 highs, and the Nasdaq Composite is down about 18%.
Thomas McManus, a strategist at Banc of America Securities, said investors may want to increase their holdings of stocks if the market drops as expected at the open.
"With the S&P 500 index down at least 10% versus a year ago, it makes sense for investors to consider increasing their exposure to equities into the sell-off, gingerly or aggressively, depending on their investment horizon," he said. The brokerage boosted their recommended equity allocation to 65%, up by 5%, and lowered their cash allocation by the same.
"It is the magnitude of the earnings decline that is still in doubt; we concur that - at $1,250 to $1,300 - many stocks in the S&P 500 are priced for a modest recession," he added.
If the losses materialize, attention may turn to the U.S. Federal Reserve, and whether the Fed will cut rates by up to three-quarters of a percentage point - and whether it will make an emergency move.
"The general state of fear begs the question whether the Fed can hold off another week," said Kenneth Broux, an economist at Lloyds TSB Financial Markets.
A speech from Treasury Secretary Henry Paulson will attract more attention than usual given the worldwide stock market drop.
There also are important earnings releases, including from Bank of America (BAC:![]()
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Crude-oil futures dropped $3.19 to $86.73 a barrel, and gold futures fell $15.70 to $866 an ounce.
The dollar clawed back some of Monday's losses against the Japanese yen on hints that Japanese rates may fall. The Bank of Canada also is due to make an interest-rate decision.
There also were a few deals to consider, including Roche sweetening its offer for Ventana Medical Systems (VMSI:![]()
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Steve Goldstein is MarketWatch's London bureau chief.VMSI
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