Wall Street Turning In An Ugly Week

Investors have seen most of the stocks in their portfolios lose ground this week. A lot of ground.

Worries about a possible U.S. recession and a debt crisis in Europe ran head-on into a gloomy assessment from the Federal Reserve, creating a perfect storm of selling. The Dow Jones Industrial Average was down more than 300 points in early trading today. Since Monday, the Dow has lost more than 700 points, or 6.1 percent.

In large part the market reacted negatively to the Fed's announcement Wednesday that it would purchase $400 billion in long-term debt. The market, apparently, was hoping for something more. The Fed's statement didn't help.

“Recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated,” the statement read in part.

Having tried to stimulate the economy with Quantitative Easing (QE) I and II, the Fed may be running out of bullets.

“The Fed is in a tough position,” said economist Joel Naroff, of Naroff Economic Advisors, in Holland, Pa. “Fiscal policy is becoming more restrictive just as the risks to a disappointing recovery from Europe ramp up. The Fed Chairman is betting that any future inflation pressures can be handled. Given the state of confidence and the political gridlock, I believe the risks are worth taking even though three members of the FOMC differed and cast dissenting votes.”

Not helpful

Naroff said politicians of all stripes are taking shots at the Fed, which he says is not helping things.

“You cannot say that the recovery is too weak and jobs have to be created and then do nothing, especially if there are dark clouds out there that could rain on the limping parade,” Naroff said.

On Wall Street meanwhile, the sea of red gets deeper. The selling is led by shares in energy and materials companies – two sectors that could be expected to suffer the most in a recession.