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Dow plunge: return to recession?

By Jed Boal | Posted - Aug. 4, 2011 at 10:19 p.m.

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SALT LAKE CITY -- Fears about the global economy led to the biggest panic in financial markets since the 2008 financial crisis. The Dow plunged more than 500 points, the biggest drop since October 2008.

All three major stock indexes are down at least 10 percent from their previous highs, a drop-off that is considered a market correction. A drop of 20 percent or more signifies the start of a bear market, an extended period of stock declines.


The big question now is whether we're headed into another recession.

"The U.S. economy is weaker than we'd been led to believe," says Zions Bank Economist Jeff Thredgold.

He says investors worry about the debt crisis in Europe and fear the possibility of another recession here.

"Suddenly, the chance, or the potential, of another U.S. recession or severe slowdown is back on the radar screen," he says.

Over the past week, debate of the debt ceiling and potential government default dragged the markets down. The country avoided government default, but Thredgold says, the deal did not satisfy anyone.

Here's the sliver of good news:
  • Mortgage rates will likely drop for those who qualify.
  • Gasoline prices should drop.
  • Low stock prices will eventually lure investors back.

"You get through that door, and suddenly here's the European crisis that never goes away, that's kind of getting worse."

So, the U.S. and European debt crises set the stage, and revised data from the Commerce Department delivered another vicious blow.

"The Great Recession was deeper than we expected, or had been led to believe," Thredgold says. "The recovery has been softer, and they said, 'Oh, by the way, U.S. economic growth the first half of this year was much softer than previous data had indicated.'"

Here's the sliver of good news: Mortgage rates will likely drop for those who qualify, gasoline prices should drop, and low stock prices will eventually lure investors back.

"We could easily go somewhat lower," the economist says. "But in my mind, that's a buying opportunity versus a time to panic. History tells us, if you stick with markets and you don't panic, that usually leads to better market performance."

The economist says the markets and businesses don't like uncertainty, and neither do we. So, spending and hiring may remain sluggish.


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Jed Boal


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