After a dive yesterday following the FOMC meeting, U.S. stock market losses continued this morning. The Dow lurched down 350 points in early trading before stabilizing, but things still look ugly.
A number of issues are at play right now, but the largest is investor emotion. Many folks are just plain scared right now — consumers are scared about their jobs and reluctant to spend, investors are reluctant to buy anything other than bonds, and cash-rich businesses are scared to do anything other than sit on their piles of money.
But if you want some “reasons” for the selloff, here are a few big news items of note:
China Slowing Down: HSBC’s China Manufacturing Purchasing Managers’ Index fell to a two-month low in September, hinting that China is not immune to the slowdown and could be moving from boom times into a phase of more moderate growth. HSBC economists, of course, pointed out that the Chinese economy is not screeching to a halt — but considering Asia and other emerging markets have been the sole source of global growth, it’s a troubling trend to see any decline in China.
Fed Admits Things Are Ugly: Bernanke’s quote of the day yesterday was: “There are significant downside risks to the economic outlook, including strains in global financial markets.” That’s not news to anyone, but Big Ben was using very different language just several months ago. Take this gem from a January appearance before Congress: “We have seen increased evidence that a self-sustaining recovery in consumer and business spending may be taking hold.” Admittedly, perhaps too much weight is placed on Fed soundbites. But the contrast is disturbing nonetheless.
Housing and Unemployment and Spending — Oh My!: And, of course, beyond these “new” news developments there is the steady drumbeat of gloom and doom on old issues that have plagued the market. This week we learned that housing starts dropped 5% in August, the most since April. Jobless claims dropped a measly 9,000 last week and remain over 420,000. Even the rich are cutting back, as a recent report shows that luxury sales have started to flag.
It seems like more of the same. So perhaps the big question here isn’t why we are seeing a decline, but why we saw such a rally from the August lows after the fragility of the economy was clearly on display.
We are right back where we were a month ago, and investors should be wary of any rapid move away from these valuations without significant improvements on any of these issues.
Oh yeah, and that debt thing in Europe still is going on — guess we should watch that, too.
Jeff Reeves is editor of InvestorPlace.com. As of this writing, he did not own a position in any of the stocks named here. Write him at editor@investorplace.com, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook.
