10 reasons why global stocks have plunged

The Dow Jones industrial average plunged 275 points Friday, the index's biggest loss since last November. The broad selloff wiped out the last of the index's gains for the year. The Dow is off 0.8 per cent for the year; two months ago, it was up more than 8 per cent for the year.

Markets in Europe and Asia have also witnessed similar cuts over the last two months. May was the worst month for the stock market in two years by some measures. India's benchmark Senses and Nifty ended with over 5 per cent losses in May. In Europe, markets in Spain and Britain lost over 10 per cent, while Germany's DAX index fell over 7 per cent in May. Japan's Nikkei index plunged over 9 per cent in the last month.

Here are 10 reasons for the renewed weakness in global stocks:

1) American employers added just 69,000 jobs in May, the fewest in a year, and the unemployment rate increased to 8.2 percent from 8.1 percent. Economists had forecast a gain of 158,000 jobs. The report, considered the most important economic indicator each month, also said that hiring in March and April was considerably weaker than originally thought.

2) Complicating the challenge for the economy, tax cuts passed under President George W. Bush will expire after Dec. 31, as will a cut in the Social Security payroll tax. More than $100 billion in automatic spending cuts to defence and domestic programs also kick in Jan. 1. Less money in consumers' pockets next year and less spending by the government would be a significant drag on the economy.

3) Investors' worries about Europe's debt crisis intensified as the month wore on.

4) Greece's political future is uncertain, and it appears increasingly likely to stop using the euro currency. That could rattle financial markets and make Greece's economy — already hobbled — even weaker.
5) Spain is moving closer to the financial tipping-point that could force it to ask for a bailout as the country's borrowing costs neared unsustainable levels.


6) Unemployment in the 17 countries that use the euro currency stayed at a record-high 11 per cent in April, and unemployment spiked to almost 25 per cent in Spain.

7) There are signs that growth in China, which helped sustain the global economy through the recession, is slowing significantly. China's manufacturing sector weakened in May, according to surveys released Friday.

8) Everybody's looking for a safe haven: Fearful investors snapped up safer investments such as bonds, dragging the yield on the benchmark 10-year Treasury note to a record low. Gold spiked $50 an ounce, and oil fell to its lowest since October.

9) The Federal Reserve undertook programs in 2009 and 2010 to buy U.S. government bonds. Its goal was to lower interest rates and encourage people to buy riskier investments like stocks. However, the central bank so far has resisted a third round of purchases, known as quantitative easing.

10) A slower global economy would reduce demand for energy. The price of a barrel of oil fell $3.49 to $83.04, extending a month long slide. The price of oil is at a 16-month low. This has led to a sharp correction in commodity stocks.

 
(With inputs from AP)