Stocks plummeted Monday with selling pressure rising steadily throughout the session. The Dow Jones Industrial Average was hit with a 313-point decline (-1.9%) that threatened to trigger even more selling as the index fell below a key technical area for the first time since Aug. 25. The S&P 500 dropped 2.6% and the Nasdaq lost 3%.
Biotechnology stocks again led the way lower, with iShares NASDAQ Biotechnology Index (ETF) (IBB) falling 6.3% and erasing all of its gains for the year. The sector has been under pressure since Sept. 21, when presidential candidate Hillary Clinton said she would go after “price gouging” by drug companies.
A boost in sales of the new iPhone 6 couldn’t stem the tide of selling of Apple Inc. (AAPL), which lost 2%.
Energy- and commodity-based equities were also hammered. Crude oil for November delivery lost 2.8% at $44.43 a barrel due to fresh worries over weak economic growth in China and oil oversupply.
Williams Companies Inc (WMB) fell 12.1% following an offer by Energy Transfer Equity LP (ETE) to buy the company. ETE dropped 12.7%.
Lower commodity prices hit Glencore PLC hard. The mining company fell 29% in London and is down 87% from its 2011 IPO. Freeport-McMoRan Inc (FCX) fell 8.1% as copper and other metals declined. Gold for December delivery fell 1.2% to $1,132 an ounce.
As a result of gold’s decline, the U.S. dollar rose and the euro fell to $1.1245.
At Monday’s close, the Dow Jones Industrial Average fell 313 points to 16,002, the S&P 500 declined 50 points to 1,882, the Nasdaq was crushed for a 143-point loss at 4,544, and, the Russell 2000 was off 32 points at 1,091.
The NYSE Composite’s primary exchange traded heavy volume of 1.1 billion shares with total volume of 4.3 billion shares. The Nasdaq crossed 2.4 billion shares. On the Big Board, decliners outpaced advancers by 9-to-1, and on the Nasdaq, decliners led by 5-to-1.
High-P/E biotech stocks have been absolutely crushed on high volume since the sell-off began on Sept. 21. In just over a week, IBB has managed to lose 18.5% and fall into negative territory for the year.
Conclusion
The slaughtering in biotech likely conjures up the memory of the “tech wreck,” also known as the bursting of the dot-com bubble, when high-P/E stocks like Amazon.com, Inc. (AMZN) fell from triple-digit to single-digit share prices.
It took a long time to make up the losses of 1999-2001 — 10 years to be exact. But a decade and a half later, AMZN is worth around $500 per share. On the other hand, companies like Pets.com were never heard from again.
The lesson is this: Buy only high-quality stocks with a record of solid management and a history of dividend increases for your long-term portfolio since they always seem to recover and make new highs.
To drive the point home, on Oct. 19, 1987, known as Black Monday, stocks around the world crashed. The Dow fell 508 points to 1,739 for a loss of 22.6%. However, by January 1989, the industrials had recovered their losses and hit a high of 2,809 later that year. Again, the lesson is that those who held quality stocks not only made back their losses but had gains.
Buy quality and hold. Trade high-P/E stocks but be nimble.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
