Insight: Wall Street slide sends waves across economy

(Reuters) – A scary drop in stocks and commodities threatens to squeeze life out of an already faltering U.S. economy, with deal-making, investment in plants and equipment, and capital raising at risk of slowing down or freezing up.

This will likely further damage consumer confidence, already jarred by the toxic battle in Congress over the government’s debt ceiling and by high unemployment, and feed fears another recession is just around the corner.

Such market declines can create a vicious circle, where falling values in retirement and mutual funds hurt investors’ confidence and reduces their spending activity – in turn feeding into decisions by businesses to delay or cancel plans as the outlook for sales and profits dims.
A board at the New York Stock Exchange shows the final trading numbers for the day, August 4, 2011. REUTERS/Brendan McDermid

On Thursday, Wall Street suffered its worst sell-off since early 2009 when the financial crisis was still taking a big toll, while crude oil declined as much as 6 percent. The S&P 500 has now declined 10.7 percent in the past 10 trading days.

Behind the panicky slide are fears the United States is staring at another recession following a series of ugly economic figures in the past week, and concerns Europe’s sovereign debt crisis is worsening as it spreads to Italy and threatens the existence of the euro zone in its current form

 “The market is taking everything down, and that’s causing people to pause, which will affect all businesses,” said Kent Gasaway, a portfolio manager with the Buffalo Funds in Kansas City.

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