tocks plunged today as new data showed that the manufacturing sector is still very weak, heightening investor concerns about the outlook for an already sluggish economic recovery.Posted on 09/03/2002 2:56:26 PM PDT by sarcasm
tocks plunged today as new data showed that the manufacturing sector is still very weak, heightening investor concerns about the outlook for an already sluggish economic recovery.
The three major indexes fell 3.9 percent or more, led lower by sharp drops in Citigroup, down 10.3 percent; General Motors, off 4.8 percent; Exxon Mobil, down 5.2 percent; General Electric, off 5.6 percent; Microsoft, down 4.2 percent, and Intel, off 4.9 percent. All 30 stocks in the Dow Jones industrial average were down as were about 480 of those in the Standard & Poor's 500 index. The 4.2 percent decline for the S& P 500 index was its worst daily fall since just after Sept. 11.
The fall of the market on the first trading day in September comes after the Dow Jones industrial average and the Nasdaq composite index finished August in the red, with both declining for the fifth consecutive month.
All three indexes are still above the lows reached when the overall market hit a five-year low in July. But Nasdaq is only 58 points away and the S&P 500 index is back below 900 for the first time in four weeks.
"The market still has a lot of speculation built into it," said Richard Bernstein, the United States equity strategist at Merrill Lynch. And he warned that he does not think the market has reached a bottom.
Investors who are playing the market's volatility, trying to profit on the rallies and the slumps are the driving force in the market, he said. "The dominant theme in the market is momentum," he said, "momentum up and momentum down."
But as stocks fell, the bond market rallied and interest rates fell sharply, which could be good news. Lower interest rates make borrowing cheaper and could allow many homeowners to refinance their mortgages, giving them extra cash to spend. In late afternoon trading, the yield on the Treasury's 10-year note was at 3.96 percent. Except for a brief intraday trading dip below 4 percent in mid-August, the yield on a security with a 10-year maturity has not been this low since the early 1960's.
Since the stock market reached its five-year low, investors have had to face conflicting news on the outlook for the economy and, in turn, corporate earnings. At the same time, some analysts argued that the market was attractive because it was undervalued while others still worried about how high price/earnings ratios had remained.
Last week, on the positive side, it was reported that orders for durable goods shot higher in July while consumers increased their spending by 1 percent, also a big surge. But at the same time, consumer confidence declined.
Today's report from the Institute for Supply Management was another for the negative column. The institute's factory index stayed at 50.5 in August, while Wall street forecasters had predicted the index would rise to 51.8 percent.
To David J. Greenlaw, chief United States fixed-income economist at Morgan Stanley, the report seemed even weaker than it appeared. "Technically, with the composite index above 50, the manufacturing expansion continued in August," he said in an analysis of the new data. "But with orders down and only 8 out of 20 industries reporting growth, down from 12 in July and 15 in June, the recovery that started in February is clearly faltering badly."
He also noted that the report said that manufacturers are "anxious about second half sales" and worried about the decline in both business and consumer confidence.
At the close, the Dow was down 355.45 points, or 4.1 percent, at 8,308.05 while the S& P 500 index fell 38.05 points, or 4.2 percent, to 878.02. The Nasdaq dropped 51.01 points, or 3.9 percent, to 1,263.84. The five-month decline through August was the first for the Dow since 1981 and the first for the Nasdaq since 1984.
Citgroup fell in part because Michael L. Mayo, an analyst at Prudential Securities, downgraded the stock to a rating of sell from a rating of hold. He said the downgrade was because he expects earnings to be weaker than expected and Citigroup still faces potential losses from lawsuits in connection with Citigroup's dealings with Enron.
In the bond market, the yield on the Treasury's two-year note, which is often sensitive to expectations of a Federal Reserve rate cut, fell to 1.99 percent, from 2.15 percent Friday. But this is still above its historic low of 1.89 percent in early August.
In what may have been another blow to investors, Federal Reserve officials have indicted that they do not think that another cut in their benchmark short-term interest rate is necessary to assure that the economic recovery continues.
Even after Fed policy makers met Aug. 13, and did not cut rates, there seemed to be hope for a rate cut at the September meeting. But recent comments from Fed officials seemed to put a damper on these expectations. But today's weaker than expected manufacturing data seems to revive expectations of a September cut a little. And betting on a rate cut could grow if the August employment data due Friday shows the economy is weaker than expected.
The economy trumps everything. Alan Greenspan was personally responsible for keeping Clinton in office. Now he has turned the interest rate knob to nearly 'zero' and has no more "control authority". Something better change fast or Bush is gonna be a one-term pres.
--Boris
With Mexican laborers?....
Tell me this. How many pure Internet plays are/were in the DOW, NASDAQ and S&P? How many Enrons, Xeroxi? I get a kick out of people who think they can boil it down to a sentence and get it to stick.
I think the idea is when investors see eBay with a PE of around 100, they're not so hesitant to bid up some other, unglamorous stock to a PE of 25 or so when normally they'd be cautious about a PE of much more than 15.
NO, illegal wetbacks
We get some leadership in Washington that promotes private sector investment, and promotes smaller government.
His only hope is to keep us in a shooting war. There's no way he'll change his failed economic policies. He thinks he and Larry Lindsey are right, and everybody in the market is wrong. I think he'll give a speech in the next few months telling us it is our patriotic duty to accept a lower standard of living.
Help me here. I seem to remember something from my Economics courses in the '60s about there being interest rates that encourage a successful economy, and they can neither be too low nor too high. Is this the "power zone" idea you refer to?
I'm actually tempted to go to a used book store and see if I can find an old Samuelson text, just to connect my educational background with the stuff I read today.
This is absolutely true. I'm one of those doing exactly that.
This market is only good for short term trading. Buy a stock that's been beaten to a pulp, ride it up a couple of bucks, sell, and wait for it to reach those lows again. Repeat until rich.
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