Political wrangling over the U.S. budget and Europe's slide into recession are helping to erode investors' confidence, dragging Canadian and U.S. markets to their lowest levels since mid-summer.
For Canadian investors, the losing streak over the past week has been particularly acute as growing concerns about the health of the global economy hurt commodity prices and the raw materials producers that make up much of the domestic stock market.
Including a 118-point wallop on Thursday, the S&P/TSX composite index has recorded four triple-digit declines so far in November, which is shaping up as the worst month for Canadian stocks since May.
In the United States, the S&P 500 notched its third successive decline Thursday, pushing it toward a four-month low and an overall drop of 7.7 per cent since mid-September.
A diverse mix of economic worries, as well as technical factors, are playing into the market's slide, but the core message is consistent: The global recovery is slowing and there is growing fear that political wrangling could tip the U.S. into a significant downturn.
"Based on what I see in the market right now, we're pricing in a mild recession for next year," said Jack Ablin, chief investment officer at BMO Harris Bank in Chicago.
Just two months ago, the S&P 500 was closing in on a five-year high with investor enthusiasm buoyed by upbeat U.S. employment reports, a recovering housing market and optimism that simmering budgetary issues would disappear.
That confidence looks out of place now, as investors fret over the implications of Barack Obama's re-election last week. His victory ensures more political gridlock in Washington, given that Republicans still control the House of Representatives.
If the two parties can't strike an agreement, the resulting standoff could tilt the United States off the so-called fiscal cliff – a catch-all term for the automatic tax increases and spending cuts that are set to arrive in the new year, potentially pushing the U.S. economy into recession.
Already, the looming cliff has been weighing on business activity because of the uncertainty it is creating.
"If you're not sure of the fiscal outlook and its impact on growth, why would you want to invest right now?" said Krishen Rangasamy, senior economist at National Bank Financial. "You don't know what future sales or unemployment are going to be."
Pavilion Global Markets noted that confidence among U.S. chief executives, as measured by the most recent Conference Board survey, has fallen to levels normally associated with the start of recessions.
"In our opinion, the cliff debate will bring a lot of volatility in financial markets and keep equities under severe pressure until the year end," Pavilion strategists said in a note. "However, we expect U.S. politicians to come to an agreement in late December to avoid the full cliff."
But the fiscal cliff isn't the only threat. The euro zone continues to struggle with its sovereign debt crisis and weak economy as governments slash spending.
Investors learned on Thursday that the euro zone economy contracted again in the third quarter, following a second-quarter decline, sending the region into its second recession since 2009.
In the Middle East, fighting between Israel and Hamas is the most extreme in four years, threatening to create a regional conflict because no one knows how the new leadership in Egypt will react.
As global anxieties increase, raw material prices have slid. Crude oil has slumped 14 per cent since September, copper has fallen more than 9 per cent and even gold has lost more than 4 per cent.
There are also technical issues weighing on stocks. The S&P 500 is languishing below its 200-day moving average, which some investors see as a bearish signal.
Of course, investors have had to endure plenty of setbacks before as stock markets – and the global economy – staggered back from the bear market mauling they suffered in 2008 and 2009.
Each time, stocks have come roaring back – usually, after stimulus efforts from the Federal Reserve. Now, though, with interest rates at zero and the U.S. central bank already promising unlimited stimulus efforts, it isn't clear what the Fed can do next.
Ben Bernanke, chairman of the Federal Reserve, addressed market concerns in a speech on Thursday. "We will continue to use the policy tools that we have to help support the economic recovery," he said, without elaborating.
For some observers, this is hardly comforting.
"We've got this fledgling recovery," said BMO's Mr. Ablin. "We've had the benefit of deficit spending and a monetary policy that has been pedal to the metal since 2008, and all we have to show for it is barely 2-per-cent growth."
Copper prices, often said to mirror global economic sentiment, dipped for a second day as fears grew about the U.S. fiscal cliff and as the euro zone entered recession amid widespread anti-austerity protests. Copper is trading at about $3.46 (U.S.) a pound, more than twice where it hit during the depths of 2008-09 crisis.
Oil prices were down for a third time this week, touching the $85 a barrel level on the New York Mercantile Exchange as inventories for the world's most traded commodity rose to a three-month high and investors worried about weak U.S. jobless data and poor corporate result
The price of gold also slipped on the day after a report from the World Gold Council showed demand fell 11 per cent in the third quarter, dragged down by lower-than-expected appetite for the metal in China
Grains from corn to soybeans and soy oil were also down on the day and the Morgan Stanley Commodity Related Index of 20 stocks involved in commodity related industries from energy to metals, agriculture and forest products also slipped.
Shares in Alcoa Inc., one of the world's largest aluminum producers, have fallen 7.9 per cent since Barack Obama's re-election on Nov. 6. That suggests investors expect industrial production to be lacklustre in months ahead.
Even the biggest success story in technology isn't immune to the downdraft. Shares of Apple Inc. have declined 9.8 per cent since the U.S. election. American investors with large embedded gains in the stock may be fearing the higher capital gains taxes that would result if Congress can't resolve fiscal cliff negotiations by the end of the year.
One way to gauge the strength of the global economy is to look at the frequency with which companies have an urgent need to get things from point A to point B. Shares of Fedex Corp. have slid 7.3 per cent in the past two weeks, suggesting that investors think the pace of international business is slowing.