The U.S. stock market dropped again Friday, with the Dow Jones Industrials Average closing down 1.6 percent. That capped off a week of extreme volatility on Wall Street as investors continued to lose confidence in stocks because of worries about the health of the American economy and a looming financial crises in Europe and in Asia.
The news coming from the world’s financial markets on Friday may be grim, said Jeffrey Sica of Sica Wealth Management, but he added that the market’s overall volatility recently is an even greater cause for concern.
“I mean 400-point days four days in a row last week, and then another 400-point decline yesterday, people can’t deal with it. They have no confidence so they are very quick to sell," said Sica. "It’s just an overall lack of confidence where they wake up in the morning and turn on their television and see how bad things are in Europe and how bad things are in the U.S. economically, and it is dismal.”
Sica notes that even upticks in share prices are not enough to restore investor confidence.
Fearing that the market will plummet again within days or even hours, many investors are taking their profits out of the market rather than reinvest. Sica said most have been keeping their cash, putting it into hard assets like gold, or parking it in low-risk, low-yield U.S. Treasury bonds.
“And we’ve seen it. We saw that money run into the 10-year Treasuries yesterday. You’ve seen tremendous amounts of what are called redemptions out of mutual funds, where people sell their mutual funds and go to cash," said Sica. "We are seeing record levels of that. And that’s because fear is ruling the show right now and it may continue for some time.”
Stocks on the New York Stock Exchange lost 4 percent over the week.
Share prices in Europe and Asia also plunged Friday - with most key Asia stock indexes down more than 2 percent, and leading indexes in Europe off 1 percent or more. Gold prices rose, hovering near $1,850 an ounce at the end of U.S. trading.