Updated, 8:10 p.m. |
For a day at least, Wall Street was able to work through its worries about the world economy.
After Wednesday's mayhem, stock markets around the world mostly stabilized on Thursday. The Standard & Poor's 500 benchmark of American stocks recovered from an early slump to close ever so slightly higher, at 1,862.76.
The Nasdaq composite index rose 2.97 points, or 0.05 percent, to 4,217.39, while the Dow Jones industrial average fell 24.50 points, or 0.15 percent, to 15,117.24.
Most European markets, which were hit particularly hard on Wednesday, fell again, but ended up off their lows.
The yield on the 10-year Treasury climbed after dipping below the psychologically important 2 percent mark for the second consecutive day.
In recent years, investors have piled into Treasuries during times of stress, so the small increase in the yield, to 2.15 percent, from 2.13 percent late Wednesday, was a sign that investors had shed some of their nerves. The price on the 10-year Treasury note fell 7/32, to 101 31/32.
As some calm settled on Wall Street, some executives wondered whether fears about the global economy — which prompted some of the frantic selling in recent days — might be overdone.
"In speaking with our economists only yesterday," Harvey M. Schwartz, chief financial officer of Goldman Sachs, said on a conference call on Thursday, "they would argue that nothing has fundamentally changed in the past two weeks, or certainly the last 24 hours, regarding the long-term outlook for the global economy."
But it is not clear that the world's biggest economies have enough momentum to please markets.
The exception might be the United States economy. After a handful of uninspiring economic releases on Wednesday, two strong ones came out on Thursday, including a low number for people claiming unemployment benefits. In addition, James Bullard, the president of the Federal Reserve Bank of St. Louis, suggested that the Federal Reserve could consider delaying the end of its bond-buying stimulus program.
Average for some Federal Home Loan Mortgage Corp. securities.
But investors' fears focus on Europe, where it is not clear that policy makers will reinvigorate the region's wheezing economy.
On Thursday, the European Union said that inflation in the 18 countries using the euro had fallen to 0.3 percent in September, its lowest level in five years. Spain, Italy and Greece actually had deflation.
Falling prices are considered troubling because they can feed on themselves and deepen an economic malaise.
"Europe faces the risk of a prolonged period of substantially below-target inflation or outright deflation," the United States Treasury Department warned on Thursday in a semiannual report to Congress.
Many economists believe an emphatic response is necessary to reverse deflation. The European Central Bank has two substantial stimulus programs in place to induce bank lending. But some economists want the central bank to go one big step further and print money to buy large amounts of government bonds, a policy that the Federal Reserve pursued in earnest in the United States.
While such stimulus has left trillions of dollars idling in American banks, it nevertheless seems to have the effect of sending a clear signal that the government is determined to bolster the economy, which can then persuade businesses and consumers to spend.
Even so, resistance in Germany to government bond buying is strong. That may delay the European Central Bank from doing it — or prevent it altogether. The German skeptics say that aggressive monetary policies like bond buying simply cannot solve the impediments to growth that they perceive to exist in countries like Spain and Italy.
Hans-Werner Sinn, president of the Ifo Institute for Economic Research in Germany, contends that wages in the peripheral European countries rose to unsustainably high levels in the years before the sovereign debt crisis and that while they have fallen, they still need to fall further. He noted that Spanish manufacturing wage costs are about 23 euros per hour, versus seven euros for Poland.
"They are more than three times as expensive," Mr. Sinn said.
The Germans have taken to the courts to stop the European Central Bank from carrying out government bond buying, asserting that it would fall afoul of a European Union treaty.
Some economists still believe that Europe can make it out of its difficult patch without government bond buying. They, for instance, expect a boost from the regulatory tests at European banks to determine whether they have sufficient capital.
The so-called stress tests, whose results are scheduled to come out later this month may have temporarily distracted and deterred European bankers from stepping up their lending. And if the tests are seen to be credible, they could bolster confidence in the region as a whole.
"The stress tests are a tool that worked in U.S. and they will work in Europe," said Markus Schomer, chief economist at PineBridge Investments.
But to others, Europe is not strong enough to wait to see if things like stress tests and efforts to bolster economic competitiveness can revive the region. At the very least, according to this view, government bond buying could significantly guard against the risk of deflationary slump.
"Yes, there is a belief that the E.C.B. will act if necessary, but the question is how bad things have to get before it does so," said Mark H. Haefele, global chief investment officer at UBS's wealth management unit.
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