NEW YORK – An already faltering U.S. economy is likely to suffer even more in the aftermath of Tuesday's devastating attack on the nation, economists and market watchers said.
"I think we have certified for all practical purposes a recession as a result of this with the market being as fragile as it is," said Stanley Nabi, a managing director at Credit Suisse Asset Management, which oversees about $110 billion.
Three hijacked planes slammed into U.S. landmarks, destroying New York's World Trade Center and plunging the Pentagon outside Washington into flames. Financial markets shut in the United States as the globe remained fixated on television and wire reports for clues as to the extent and source of the attack.
The unprecedented attacks rattled the once-unshakable confidence in the United States as a safe haven, and sparked gains in gold as investors scrambled for safety.
The New York Stock Exchange said Wall Street will remain shut on Wednesday, and the Bond Market Association said U.S. bond markets will remain closed as well.
Economists had been fiercely debating whether the U.S. economic downturn would meet the official definition of a recession — two straight quarters of a contraction in gross domestic product.
"I think this is a blow to consumer confidence that will cause the consumer to say, 'This is not the time to spend,'" Nabi said, explaining the economy would slow further as consumers kept their wallets shut.
The stock market has tumbled as the nation's red-hot economy began to peter out and the tech bubble imploded. Sell-off after sell-off has pushed the Nasdaq Composite index and the broad Standard & Poor's index deep into bear-market territory.
Wall Street had expected earnings will come out of their slump by the first quarter of next year, but the devastating attacks on the United States left investors throwing all assumptions to the wind.
Casualties Likely Amid Wall Street Players
U.S. markets were expected to announce on Wednesday when U.S. equities markets would repoen.
But the destruction of the World Trade Center buildings is likely to take an enormous human toll on the financial community — and limit its ability to recover quickly.
Some of the biggest names among U.S. and world financial services firms have offices in the World Trade Center, including investment bank Morgan Stanley, which is the building's largest tenant with 50 floors. Morgan Stanley's spokesmen, most of whom are based in midtown Manhattan, were unavailable for comment.
Switzerland's Credit Suisse Group and Germany's Commerzbank, Deutsche Bank AG, Cantor Fitzgerald and market data firm Thomson Financial, a unit of Thomson Corp., also have offices in the complex.
"We have two to three hundred people who work in that building and we have not been able to account for them due to communication failure," a senior Thomson executive in London told Reuters.
Gold, Oil Prices Surge
Tokyo's Nikkei Stock Average of 225 issues closed at 9,610.10 points on the Tokyo Stock Exchange Wednesday, down 682.85 points, or 6.63 percent from Tuesday, when it was trading below the 10,000 level for the first time in 17 years.
"The market is filled with uncertainty. Calm will not return until U.S. markets open and we can reevaluate the U.S. government's response to the attacks," said Tatsuyuki Kawasaki, director of equities at Kaneyama Securities.
Prices for gold and oil surged in London on Tuesday while the U.S. dollar fell to a seven-month low against the British pound. The price of oil company stocks rocketed and European stock markets took a nosedive. The pan-European FTSE Eurotop 300 plunged 6.34 percent — a marked reversal from earlier gains of more than 1.5 percent — while the DJ Stoxx 50 tumbled 6.53 percent.
"There is panic buying of metals, gold and oil — it is complete pandemonium," said Robin Bhar, metals analyst at Standard Bank London. "Gold and oil have gone up and it is a drive toward safe haven territory."
"As this enormous tragedy is unprecedented in American history no one can have any comfort in guessing what the financial markets' outcome will be," said Michael Holland, chairman of New York-based money manager Holland & Company LLC.
"Currently, all of us are concerned with the human casualties, and the markets will simply have to sort themselves out over the next few weeks," Holland added.
Some See a Rebound
Other analysts were assessing how the market would react.
The sectors that initially may get hit would be airlines and hotels, said Howard Kornblue, Scottsdale, Arizona-based portfolio manager at ING Pilgrim, which manages $18 billion.
These basically are "all industries that are catering to travelers. I think many people right now are going to feel very very reluctant to travel unless they have to," said Kornblue, adding he was assessing whether to fly to New York next month for a business meeting.
After an initial drop, there could be a rebound as people pick up stocks from the bargain basement, he said, adding: "It presents some buying opportunity, and you end up seeing a rally actually because maybe some people recognize that that kind of thing financially has short-term implications."
"When the market opens you'll probably see a rush into Treasuries and into gold. Most likely people will try to move toward 'security' in every sense of the word," said Robert Stovall, senior vice president and market strategist at Prudential Securities.
But he said it was hard to imagine stocks opening higher after such a disaster. "After a few hours or days of pressure the stock market will revive," Stovall predicted.
"If there is one thing that happens when you have wars or near-wars, you revive the interest in federal spending to improve things," Stovall added. "Nothing brings a country out of a slowdown quicker than a national disaster, which this is."
The more time people have a chance to assess things and to stay calm, "I think the better it is for the markets," Kornblue said. "So if we don't open tomorrow I would expect the markets when they do open will have minimal move to the downside. We've already had rotten markets for a long time, so it's not like we have been in a rip-roaring bull market that is vulnerable."
Reuters and the Associated Press contributed to this report.