News / Economy

US Stocks Dive; US, European Economies Shake Investors

Specialist Gregg Maloney works at his post on the floor of the New York Stock Exchange Thursday, Aug. 18, 2011
Specialist Gregg Maloney works at his post on the floor of the New York Stock Exchange Thursday, Aug. 18, 2011
Bernard Shusman

Major stock indexes in the United States dropped sharply on Thursday.  

For many analysts, there are two main reasons for the market drop. One is the U.S. economy; the other is the European debt crisis.   

Jon Henes, a managing partner and financial expert at the New York-based law firm, Kirkland and Ellis, said a meeting between French President Nicolas Sarkozy and German Chancellor Angela Merkel this past week to address Europe's financial troubles was underwhelming.  

"We need to find a way to stabilize and capitalize the European banks before there is a monetary crisis. And then, on top of it, we’re looking at the U.S. and you’ve got inflation going up," said Henes. "You’ve got the housing market continuing to be in a depression and all the news coming out about housing is bad. You have the Philly [Philadelphia branch of the] Fed [Federal Reserve, or U.S. central bank,] report that came out today that was very weak. And as a result, you have people focused on what bad news there is in the economic world."

Henes said that because of the bad news, U.S. financial markets reacted negatively, causing what he called a crisis in confidence.

"What we’re seeing is Americans just not having confidence that our political leadership is going to get things done appropriately [not only] in the U.S., but also in Europe," said Henes.

Meanwhile, gold - traditionally considered a haven for investors - rose in price to more than $1,800 an ounce.  

Peter Cardillo, chief market analyst with Rockwell Global Capital, said soaring gold prices are due to several factors.

"One, continued central bank buying and, second, a total distrust in paper currencies. And so, obviously, investors are flocking to gold. And we will probably continue to see gold going higher."

Cardillo says gold might soon hit $2,000 an ounce. Cardillo also said he sees a slight recovery in the U.S. economy by year’s end.

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