Market slump shows continued volatility

Two glaring signs that the US economy remains in a deep slump sent stocks reeling today.

News that unemployment claims reached a record high and that new home sales hit a record low forced the major stock indexes to give back all of yesterday’s gains, and then some.

The Dow Jones industrial average sank 226 points, or 2.7%, while other indicators tumbled more than 3%.

Volatility still has a grip on the Street. While stocks had soared yesterday on hopes that the government will take bad debt off banks’ books, investors retreated in response to some harsh reminders that it might be a while before the nation’s 14-month-old recession ends, even if banks get more aid.

The Labour Department said the number of people continuing to receive unemployment benefits reached a seasonally adjusted 4.78 million week ending January 17 – the highest level on records that go back to 1967.

As a proportion of the work force, the total is the highest since August 1983.

Companies across a variety of industries have been slashing their payrolls by the thousands.

Starbucks Corp, Eastman Kodak and Allstate Corp became the latest major employers to announce big job cuts – 7,000 at Starbucks; 3,500 to 4,500 at Kodak; and 1,000 at Allstate.

“It seems like we’ve gotten through the financial crisis. Now we’re dealing with global synchronised recession,” said Brian Battle, vice president of trading at Performance Trust Capital Partners in Chicago.

And as more people lose their jobs, fewer of them are buying new homes.

The Commerce Department said home sales plunged 14.7% to an adjusted annual rate of 331,000 in December – the lowest on records going back to 1963.

Earlier this week, the National Association of Realtors said existing home sales posted an unexpected increase last month, but the sales were mostly of foreclosed homes.

“This all began as a housing crisis, and clearly, the housing crisis continues,” said Nathan Rowader, director of investments at Forward Management. “Bad housing numbers are not going to encourage anyone to be buying stock.”