Share prices on Wall Street plunged by almost 3 per cent last night as investors responded negatively to the continued crisis in the economies of the Far East and renewed fears that earnings of major American companies will be damaged by the oriental meltdown.
The worst of the slide on Wall Street - the third biggest decline ever in terms of points off the Dow Jones index - came after European stock markets had closed, and this may lead to heavy selling when European bourses re-open on Monday. Yesterday, most of the European centre closed sharply lower - mainly in response to the crisis in Asia - but fears over American corporate earnings may send share prices much lower next week and the new year bull market in Irish share prices may prove to be very short-lived.
"There is more concern about Asia which still seems a little open-ended in terms of its problems. Against all of that is increased concern about earnings, with a lot of tech companies issuing warnings about shortfalls," said Mr Eric Miller, chief investment officer at Donaldson Lufkin & Jenrette.
Investors are also disappointed that the so-called January effect - in which small stocks especially surge in the first four trading days of the year - did not occur this year.
At the close last night, the Dow Jones Industrial Average was down 222.2 points on 7580.42, while the NASDAQ index - dominated by technology companies - was down over 3 per cent. The broader-based S&P 100 and 500-stock indices were also down nearly 3 per cent, indicating that the sell-off extended far beyond the 30 blue-chip stocks that make up the Dow.
"This is largely an overreaction to the Asian financial crisis," said Mr William Cheney of John Hancock Funds. "But there are also fundamental questions about how long domestic profits can keep growing at this rate. This morning's employment report said we are creating jobs faster than people and there's a crunch out there," he added. The December employment report showed an increase of 370,000 in industrial employment against average forecasts in the market of job growth of 207,000. Initially, opinion was divided about the impact of these jobs figures, with some analysts taking the view that the employment growth was a solid indicator that the deflation feared by Federal Reserve chairman, Mr Alan Greenspan, was nothing more than a mirage.
But the majority view in the market was that the big increase in employment was a firm indicator that American economic growth is running too fast and that remedial action - in the form of a rise in interest rates - is now back on the Fed's agenda.
Markets in Europe had weakened ahead of the lunchtime release of the US employment figures, and had seemed to shrug off the news. That, however, was before the fall in New York extended to almost 3 per cent, and the fall-out from this latest setback will become evident in trading on Monday.
