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As Dizzying Week Ends on Wall Street, Dangers Linger

August 11, 2011
As Dizzying Week Ends on Wall Street, Dangers Linger

One of the most tumultuous weeks on Wall Street ended on Friday with the markets not that far from where they started, but with worries about the United States economy and the threat of a financial crisis in Europe undiminished.

The main American stock indexes finished the week down less than 2 percent after a second consecutive day of gains on Friday. Although there was a sense of relief that the economy had not fallen off a cliff — the Standard & Poor’s 500-stock index started the week plunging nearly 6.7 percent — there was little to celebrate as new data showed consumer sentiment had sunk below levels seen during the financial crisis three years ago.

The week ended on a quiet note, but many think that the Wall Street roller coaster ride is likely to continue — and that there may be more stomach-churning drops before the cars return to the platform.

“Heightened volatility is here to stay,” said Sam Stovall, chief investment strategist for Standard & Poor’s equity research.

“The markets are much more interconnected than they have ever been, and new players are exacerbating the swings,” he added. Investors’ memories of 2008 are “very fresh and will cause them to sell first and ask questions later.”

Further undermining investor confidence is the fact that nearly all of the Western markets appear to be moving in lockstep, undergoing disruptive episodes simultaneously. That makes it difficult for investors to find a safe place to park their money — hence the rush to cash and other havens like United States bonds and gold — and stirs even more anxiety about interconnected risks between the European and American debt crises.

“This has been an unbelievable week. You just had fear totally take over,” said Scott Wren, the senior equity strategist for Wells Fargo Advisors. “And the problems have not been solved. European sovereign debt issues are not going to go away. The debt and deficit situation is not going to go away.”

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