After nine weeks of declines, stock markets around the world slumped again yesterday. Wall Street recorded lows not seen since 1998 as the Dow Jones Industrial Average lost another 3 per cent in value in the wake of the WorldCom bankruptcy.
Traders blamed the market's collapse on a breakdown of investor trust. "The markets are broken and people are talking about capitulation. Until we get investor confidence back, we're not going to see people doing any buying. The buyers have taken a walk," said Mr Michael Murphy, director of equity trading at Wachovia Securities.
In Europe, as most exchanges posted losses in the region of 5 per cent, the Irish stock market once again outperformed the pack by limiting falls to just over 3 per cent.
The blue chip Dow Jones index has now lost 1,600 points in two weeks, the largest decline since the market crash in October 1997. Yesterday it lost a further 234 points to finish at 7,784, its lowest since October 14th, 1998.
Other analysts warned the sell-off has become so deep and persistent that it could now feed back into the US economy, which has been showing signs of steady if modest recovery. The result would be a double-dip recession as companies cut back on capital spending to conserve cash and consumers see their investments dwindle in value.
Most European markets slumped as soon as they opened, with investors reacting to a massive sell-off in New York on Friday. A profit warning from Dutch insurer Aegon and a weak opening in the United States pushed prices down further.
The Dow oscillated in one of the most volatile days of trading ever.
At one point it was down 300 points, then swung wildly upwards into positive territory on profit taking before plunging again before the close.
The volatility came a day after WorldCom filed for Chapter 11 bankruptcy protection, following the telecoms giant's admission in June of wrongly accounting for $3.8 billion in expenses.
"The pervasive gloom gripping the equity market threatens to spill over into the real economy," said Mr Bruce Steinberg, chief economist for Merrill Lynch.
"The massive wealth meltdown of recent months, when overlaid with a breakdown in trust, could feed back to the economy. Companies may feel a need to conserve cash and/or pay dividends, which could delay a pickup in capital spending, even as earnings accelerate."
Dealers said Irish shares continued to benefit from limited exposure to the international markets, although one wondered how long such insulation could be sustained.
Translating into a €1.8 billion fall in the value of Irish shares, yesterday's Irish performance was still a reflection of events elsewhere rather than a reaction to domestic news, dealers agreed, as they watched markets across the European continent insist on taking their lead from blood-letting in the US.
"The European markets are incapable at the moment of trading by themselves," said one dealer.
In London, the FTSE 100 plunged to its lowest level since September, 1996, shedding £48 billion sterling in the process. With selling heavier towards the close as dealers kept an eye on US markets, the biggest hit came from oil stocks which themselves accounted for a quarter of the falls. Shell led the way, losing 9.3 per cent on the back of partner, Royal Dutch, being dropped from the Standard & Poor's 500 because it was a non-US stock.
Insurers were also among the victims, with a profit-warning from Dutch company, Aegon early in the day leading Aviva and Prudential downward.
The picture was similar elsewhere in Europe, with the CAC-40 closing down 5.25 per cent in Paris and Germany's DAX index losing 6 per cent to hit a 10-month low.
Financials were among the hardest hit here, with insurers such as Axa following Ageon's lead, and Deutsche Bank in particular suffering from exposure to bankruptcies.