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European markets plunge
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December 6, 1996: 6:57 p.m. ET
Greenspan comments revive inflation and interest rate fears
From Correspondent Todd Benjamin
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LONDON (CNNfn) - Major European stock markets slid more than four percent Friday after U.S. Federal Reserve Chief Alan Greenspan complained of "irrational exuberance" on stock and other asset markets.
U.S. job figures undid some of the damage in a violent, volatile day of trading.
Before the partial bounce back, the Greenspan effect wiped some $150 billion off European share values.
Britain's FTSE 100 index closed down 88.2 points at 3,963. The German DAX index of top shares lost 117.95 points, at 2,791.96 points, the biggest loss since a nine percent tumble on the 1991 coup against former Soviet President Mikhail Gorbachev.
Analysts say the sell-off in Europe was justified but overdone.
"You've basically got steady growth, inflation is not a problem. With the exception of the UK where interest rates are going up, generally you don't have interest rate worries." said David Thwaites, economist for Credit Lyonnais Securities. "But I think the markets in Europe, led by Wall Street and the U.S. bond market had gone too far too fast--a correction was needed."
A correction but not a slump. Analysts say European markets have reason to rise again.
Corporate earnings growth in core Europe will likely be about fifteen percent, three times that of the United States. There are still profit gains to be had from restructuring and consolidation.
But the heady days of frequent stock market records may be over.
"Clearly we're not going to get the pace of stock appreciation that we have seen over the last year, or indeed going on for two years, said Joe Rooney, equity strategist for Lehman Bros. "So we would expect to see further gains being made in the U.S. and further gains being made here in Europe, but at a much more moderate pace."
The catch for investors, say analysts, is that markets may now enter a period of volatility, responding sharply not only to the words of Alan Greenspan, but to moves in the currency and bond markets.
The next meeting of Federal Reserve policy makers on December 17th is likely to be a focus of attention, and the markets are likely to be volatile until then.
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