Markets plunge again as fears of recession grow

Global financial markets plunged again on renewed fears of a looming recession, sending Wall Street into a frenzied sell-off that drove the Dow Jones index down more than 400 points.

Investors were rattled by a barrage of disheartening economic reports pointing to rising unemployment, falling home sales and a surprising drop in manufacturing activity, which had been one of the few bright spots amid the gloom.

The sell-off in the U.S. followed a rout in overseas markets that was triggered by mounting concerns about the financial condition of European banks. Stocks tumbled 4.5% in Britain, 5.5% in France and 5.8% in Germany in trading Thursday.

By themselves, none of the indicators would have sent the markets reeling. But Wall Street has entered a period of heightened volatility, in which the slightest economic data can cause share prices to swing wildly, as investors with memories of sharp losses during the 2008 global financial crisis rush for the exits.

The latest round of data pointed toward the threat of a double-dip recession across the world, experts said.

“We’re in a recession already. Look at the data,� said Bill King, chief market strategist at M. Ramsey King Securities in Burr Ridge, Ill. “The market can go substantially lower from here.�

The sell-off marked the fourth time in the last 2 1/2 weeks that the Dow has slumped more than 400 points, an indication of the widespread nervousness gripping Wall Street. The blue-chip index plunged 419.63 points, or 3.7%, to 10,990.58; it has dropped 14.2% from its recent peak in late-April.

The losses are ricocheting through the investment portfolios of individual investors around the world. And, the jarring drop in stock values is stirring particular anxiety for millions of middle-age Americans who are suddenly wondering whether to push back long-planned retirements to make up for heavy losses.

After 31 years as a high school English teacher, Terry Lee Marzell was looking forward to retirement – until the market plunge abruptly put her plans on hold.

The 56-year-old Chino Hills resident suffers painful arthritis caused by being on her feet all day and isn’t sure how much longer she can work. But with the falling market taking a bite out of her husband’s 401(k) plan, Marzell is putting off any thought of leaving her job.

“Retiring was an option before. It’s really not an option now,� Marzell said. “This leaves us wondering how old we’re going to be before we can finally rest.�

She has plenty of company.

Even before this month’s market convulsions, studies showed a growing number of Americans expecting to delay retirement because of the faltering economy and stock-market losses that have torpedoed retirement accounts over the last dozen years.

Americans ages 55 and older now predict to work until age 69, five years longer than their expectations a decade ago, according to one survey. A full 40% of Americans expect to push back their retirements because of the recession, another study found.

The threat is greatest for people in their 50s who are nearing conventional retirement age.

Many baby boomers had hoped that market gains could compensate for poor savings habits, bad investment choices or other setbacks in earlier years.

Only 15% of baby boomers — those born between 1946 and 1964 — are on track to save enough for retirement, according to 401(k) firm Aon Hewitt.

“Instead of retiring at 54 like you thought you would, or retiring at 64 like your dad did, now it might be just the other side of 70,� said Terrance Odean, a UC Berkeley finance professor.

The scar tissue is still fresh from the market’s massive dive during the financial crisis, in which the Dow lost more than half its value from late-2007 to early 2009. The recent plunge in the market has intensified a years-long flight by individual investors from stocks.

Investors yanked a net $23.5 billion from U.S. stock mutual funds last week, the largest level since the height of the financial crisis in October 2008, according to the Investment Company Institute. They’ve pulled out a net $400 billion since 2006.

For people such as Marzell, the market’s drop has complicated retirement dreams that already had been compromised by the weak economy and other factors.

As a teacher at a local high school, Marzell has been confronted by California’s financial woes. She was furloughed nine days in the last year and worries that her future pension could be reduced.

Her husband, Hal, a lawyer who also works for the state, took a large pay cut when he left a private firm four years ago, but assumed the job security would be worth it, she said.

Marzell had contemplated taking a buyout from her job but now plans to work longer to build up her pension.

“We’re being squeezed from all directions,� Marzell said.

While Marzell is able to stick with her job, others aren’t so lucky.

A study this year showed that nearly half of the older Americans surveyed said they retired sooner than planned, with 41% citing health problems and 19% saying they lost their jobs.

After watching his 401(k) plunge 30% during the global financial crisis, Gabriele Nicoletti’s woes were aggravated last year when he lost his job as a food-service director at a large company.

Although the 59-year-old Chula Vista man avoided the market’s current downdraft by selling his stock holdings last year, he is still trying to recoup his losses from 2008 by teaching cooking classes and working in catering.

“Now I do whatever I can,� he said.

With the financial markets rocked and the economy tilting into recession, many people are sticking with their jobs out of fear of depleting their savings in retirement and having to go back to work.

That’s what happened to Kent B. Chilcot, who thought he was all set when he retired as an advisor to corporate retirement plans in 1999. He and his wife built a house in La Quinta, and he planned to spend his days on the golf course.

But he didn’t foresee the dramatic bust that followed the late-1990s Internet-stock boom. His stock portfolio tumbled 70%, and he went back to work in September 2003.

Chilcot, 65, planned to work for five years, but the market’s plunge in 2008 changed that. He’s still working and isn’t sure when he’ll stop.

“I am so cautious now,� he said, “that I keep thinking to myself, ‘I’ll extend retirement out another year, another 18 months, another two years.’ �

Chilcot has more than half of his portfolio in stocks today — and he and others fear a repeat of the market plunge from late-2007 to early 2009, when the Dow slumped 54%.

For now, the market has had enough see-saw action to prevent steeper losses. The Dow is down 9.6% so far in August, and 5.1% since Jan. 1.

This month’s decline has been driven by individual and professional investors whose memories of the earlier period remain vivid, said Sam Stovall, chief investment strategist at Standard & Poor’s Corp. in New York.

“Investors remember how quick and painful the 2008 market implosion was,� Stovall said, “and they would much rather sell before they suffer bigger losses.�

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Times staff writer Stuart Pfeifer contributed to this report.