A Halloween scare for stocks

The uncertain economic outlook has spooked stocks in the last fortnight or so, with European and US equities down by 5%-6% since 19 October.

What's spooked stocks? European and US equities are down by 5%-6% since 19 October. Poor results at Swiss bank UBS and the British banking shake-up hit shares early this week. But the jitters of the past fortnight are largely due to the economic outlook.

Recent interest-rate hikes in Norway and Australia are a reminder that central bank support for economies will eventually end. Tighter money will create a headwind for equities. Perhaps a more pertinent worry is that the stimulus packages haven't sparked a self-sustaining recovery as yet. Investors are concerned that growth "will be crippled by a US consumer unwilling or unable" to spend, says Bill O' Neill of Merrill Lynch Global Wealth Management. There was much excitement about America's 3.5% annualised jump in GDP growth in the third quarter, but the cash-for-clunkers programme accounted for 1.7% of the 3.5% figure, says David Rosenberg of Gluskin Sheff. Indeed, had it not been for government stimulus, GDP "basically would have stagnated".

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