“I’m hanging on by the skin of my teeth,’’ said Jim Weiss, president of Weiss Capital Management, an investment advisory firm in Concord. “All this uncertainty is unnerving people, and causing investors and businesses to freeze. The dominant fear today is that the US will go back into recession.’’
Yesterday’s drop erased $120 billion in market value from the Dow, 14.2 percent below its 2011 closing high on April 29.
The sell-off was driven by several economic worries that reinforced one another, including intensifying concern about Europe’s debt crisis and the health of its banks - which have the potential to choke off credit on both sides of the Atlantic. There were also fresh economic warnings, notably one from Morgan Stanley, of slowing growth in the United States.
Perhaps most important was heightened anxiety by investors about what will spark an economic rebound at a time when consumers are fearful, governments are hamstrung, and corporations are sitting on pools of money - opting in many cases to buy back their own shares rather than hire workers and invest in new plants and equipment.
“Companies are reluctant to spend cash in periods of uncertainty,’’ said David Sowerby, portfolio manager and chief market analyst for Loomis Sayles & Co., a Boston investment firm. “Is there a meaningful catalyst that will drive the market up? I don’t see it.’’
Bill Cheney, chief economist at John Hancock Financial in Boston, described a somewhat more upbeat scenario. He said a series of modest boosts could lift the market later this year, such as lower oil prices, better retail sales, and a recovery in Japan.
Cheney projected a “mediocre, halfway decent growth trajectory’’ in the second half of 2011, with the US economy - which barely grew in the first half - expanding at an annual rate of 3 percent to 3.5 percent.
Whether that can happen will hinge in part on the health of US trading partners.
