Stocks are on the decline since the beginning of the year and this past week was no different. Bad news from the United States confirmed that the American economy is experiencing hard time. Retail sales were lower than forecasts. The Philadelphia Fed Index dropped to -20, the lowest in many years. Lower-than-expected building permits and housing starts confirmed that the U.S housing market is far away from recovering. There are no signals that the situation can improve quickly. During his speech before the US House of Representatives Committee on the Budget, Ben Bernanke signaled that the Fed will take all necessary steps to prevent recession in the U.S. Investors hope that it means a 50 basis point interest rate cut. Such move can help the economy and help the equities markets.

Continuing to decline, the Dow Jones Industrial Average lost 4.4% till Thursday to 12,160 while the wider measure of the American stock market, the S&P 500, tumbled 5.5% to 1,333. European indices are performing no better. Germany’s DAX declined to 7,450 while the French CAC 40 to 5,190. Asia, which usually strongly reacts to news from the U.S, this time lost the least. The Nikkei 225, Japan’s major index, decreased only 2.3% during the course of the week after rebounding on Friday to 13,845.

The situation on the Warsaw Stock Exchange (WSE) can be desrcibed by one word- panic.  The WIG 20, WSE’s major index, tumbled 7.% to finish the week at 2,995. One reason for such declines are foreign investors, which account for around 30% of WSE volume. Mutual funds investing in Poland need to cash their investments, selling equities even with a loss, in order to pay money back to their investors. The major guilt for the declines has to bee assigned to Polish investors. They react emotionally, not rationally to bad news flowing from abroad. The Polish economy is not doing so bad, what the Industrial Production publication confirmed (increased by 8.5% against a 8.3% forecast). Psychology play a major role in investing and this case describes it in the best way. No fundamental data should push investors to sell stocks but worse perspectives of the global (especially the U.S) economy causes big sellouts of local equities. Further drops are very probable.

Adam Narczewski