Eleven years of stockmarket performance have now been wiped out on the US market as measured by the Standard & Poor’s 500 index after another bad day yesterday that saw the index break under the previous decade low set in 2002.

The Standard & Poor’s 500 index fell to reach a level it had last been at on April 14, 1997. President Clinton was just into his second term, the Howard Government was in its second year and Tiger Woods became the youngest golfer to win the US Masters.

The US markets and economy are heading for a crucial time: oil futures prices are within a whisker of being $US100 a barrel under the all time peak after trading overnight, Wall Street is now at its lowest level in 11 years and one of the world’s largest banks is valued at nothing.

Some of the biggest names in world business are being sold down to levels not seen for years, or are being priced as though they are approaching bankruptcy: in the case of General Motors and Ford that is possible, but for other industrial groups, and Citigroup especially?

The Standard & Poor’s 500 slid 6.7% to 752.58 overnight which was under low of 776.76 reached during the bear market in 2002. The Index extended its 2008 tumble to 49% and looks like suffering the worst annual decline in its 80-year history, unless there’s a rebound between now and the end of the year.

Bloomberg said the index is now down almost 52% from an October 2007 high.

Driving the market lower was the “R” and “D” words: recession and deflation: news that a near record 542,000 new claims for jobless benefits were lodged in the US last week surprised analysts: it came after more than half a million claims were lodged the week before, meaning that over 1.05 million claims have been made in a fortnight.

The index of leading economic indicators fell for a third time in four months and the Federal Reserve said manufacturing in the Philadelphia area shrank at the fastest rate in 18 years.

Seventeen companies in the S&P 500 lost more than one-fifth of their market value overnight; that was after 14 had similar falls the day before.

In Australia, AMP Global Investors’ Dr Shane Oliver said that Australian shares are now making new bear market lows with the Australian share market having fallen more than 51% (as at the 4pm close Thursday) from last year’s high making it the second worst bear market since 1900. “Worst than the 1987 top to bottom fall of 50.1% but not as bad as the 1973-74 bear market where shares fell 59.3%.”

But our market is still well above where it was in 2000, let alone April 1997 where the S&P 500 is now trading.

The plunging prices of oil, copper lead, zinc and weak gold have helped drive commodity markets lower, as has the collapse in the prices for most rural commodities. Overnight the Reuters/Jefferies CRB index of the prices of 19 leading commodities ended 50% down from its peak, set on July 11 when oil reached at $US147.27 a barrel.

Last night New York oil futures hit an intra-day low of $US48.64 before settling at $US49.62, the lowest close since May, 2005. Copper touched the lowest price since July 2005, and corn dropped to its lowest in almost 13 months.

There’s a delicious incongruity here: a year ago we were all speculating about oil at $US100 barrel and more and what it would mean; overnight some US brokers and analysts were now forecasting oil at $US40 a barrel early in the New Year and what that might mean.

The US car bailout may be have been postponed for three weeks: the US Congress didn’t decide anything before rising today, but the big three companies (who arrived in Washington in private jets!) have been told that if they want to mount a case, they have to have a business plan for their turnaround ready by December 2 for Congress, which will return on December 8. No plan, no meet, no dough and GM is on its own, burning cash at $US2 billion a month and looking to reach it ‘go no lower level’ somewhere around early January..

US interest rates fell sharply as recession gloom gathered over the markets and investors abandoned stocks for the safety of cash. Why cash now, and not a week ago when recession was just as apparent, no one knows.

But the US 10 year bond yield fell to 3.13%, the lowest since early 2003 and the yield on the three month T-note dropped to 0.015%.

Thousands of job losses were announced in the US, Europe (Peugeot Citroen is cutting 3,550 jobs, Isuzu, the Japanese truck group, 1,400, JPMorgan Chase 3,000, Rolls-Royce between 1,500 and 2,000 jobs worldwide next year, pharmaceuticals giant AstraZeneca 1,400 positions in the next five years (hardly big news) and UK defence manufacturer BAE Systems 200 jobs now.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey