World markets were mostly lower Tuesday amid a massive drop in U.S. consumer confidence and continuing concerns about the future of America's banking sector.
Americans are gloomier than ever about the nation's economy. The New York-based Conference Board reports its consumer confidence index dropped by nearly one-third this month to an all-time low, down a whopping 12 points from last month's revised tally of 37. A year ago, the index stood above 70.
Consumer spending accounts for more than half of U.S. economic output. Fiercely negative consumer sentiment makes a rebound in spending far less likely, thereby adding to the challenges facing policymakers as they try to foster an economic recovery.
Speaking on Capitol Hill, Federal Reserve Chairman Ben Bernanke predicted the U.S. economy will continue to contract through the middle of this year, and that a recovery may not materialize until 2010, or possibly later. Bernanke said the fact that Americans are carefully watching their wallets is problematic in the short term, but desirable in the long run.
"People are going to have to save again, and in a way that is good, because we will return over the next few years to a higher rate of savings, less foreign borrowing, lower current account deficits, and that is a desirable place to go," said Ben Bernanke. "The transition, though, is very difficult. The decline in consumer spending has contributed to this great weakness in the economy. And we have a situation where, instead of saving more, we are just getting a deeper and deeper recession."
The near-constant drumbeat of negative economic news and somber forecasts helped push U.S. stocks to their lowest level in more than a decade Monday. Although Wall Street's Dow Jones Industrial Average rebounded in late afternoon trading Tuesday, the Dow has fallen nearly 50 percent since late 2007.
Investment strategist Eugene Peroni of Advisors Asset Management:
"I think we are in a valley that is pretty extraordinary, where so much of the bad news is playing into the economy, into the stock market, so much of the bad news is playing on investors' psyches that this usually indicates a turning point - in this case, I think, a bottom," said Eugene Peroni.
Peroni admits, however, that stocks could fall ever lower. Given such uncertainty, few financial advisors are urging clients to aggressively re-enter the market. And some recognize that a percentage of their clientele has no choice but to sell shares at a heavy loss. Jill Schlessinger is chief investment officer at Strategic Point Investment Advisors:
"If you cannot sleep at night, then just pull the plug and get out [of the market]," said Jill Schlessinger. "If you need your money right now and you are still invested in stocks, you have got to get out."
Most major markets in Asia and Europe closed moderately lower Tuesday. Hong Kong-based money manager Martin Hennecke says concern over chronic instability in America's banking system has weighed on Asian stocks.
"These banks' problems just show how huge these [financial] problems are in the United States," said Martin Hennecke. "Our local market is following the lead from Wall Street."
The U.S. government has spent hundreds of billions of dollars to prop up struggling financial institutions, and is prepared to spend more. Federal officials say any additional steps will be determined, in part, by so-called "stress tests" to assess the viability of major banks in the current economic climate.