Stocks drift amid mixed economic readings
The bear market that began more than a year ago is not dead yet, at least as far as the Dow Jones industrials are concerned.
And many fear that the broader Standard & Poor’s 500 index -- a gauge more reflective of the overall stock market than the Dow -- will soon deliver the same message as investors, lacking confidence in the government’s efforts to revive the economy, see no compelling reason to buy stocks.
On Thursday, as continued concerns about the financial sector led the stock market down sharply, the Dow skidded 89.68 points, or 1.2%, to a six-year low of 7,465.95 -- sagging below its 2008 low of 7,552.29 set Nov. 20.
Although the S&P; 500, which also slumped Thursday, remains 3.5% above its November low, some market watchers are bracing for the index to breach that level.
“It’s really just a question of when the November lows are going to be violated,” said Louise Yamada, head of Louise Yamada Technical Research Advisors in New York. “It seems probable that they’re going to give way.”
That would be a more worrisome development because it could prompt traders to dump shares out of fear that a major market levee had failed. It also would represent a more direct hit on individual investors, many of whom own index mutual funds tied to the S&P; and some of whom could be spooked into liquidating those stock holdings.
“At this point you have lot of people going to their money managers, who are saying to them, ‘You can’t sell down 40%,’ ” said Dan Greenhaus, market analyst at Miller Tabak & Co. in New York. “But there is a point at which people will say, ‘I don’t care if I’m down 40%, just get me out.’ ”
Even before that happens, some analysts warn, the Dow could “retest” its October 2002 low of 7,286.27, to which it fell during the depth of the bear market that followed the 1990s tech bubble. That would mark a 2.4% drop from Thursday’s close.
The Dow, which has dropped almost 5% this week, is off 15% since New Year’s Day and is down more than 47% from a record high reached 16 months ago.
At a minimum, the Dow’s new low indicates that a long-awaited market rebound will take even longer to develop, and is a disappointment to investors who had hoped that the worst losses in their retirement and college-savings accounts were over.
“It doesn’t mean that we’re going to see a huge downward movement and fall to 6,000,” said Bob Sweet, managing editor of Dow Theory Forecasts newsletter in Hammond, Ind.
“What it does mean is that the market has not, as many people had hoped, laid a bottom and that we’re going to have to start over the process of looking for a recovery,” Sweet said.
The S&P; gave up 9.48 points, or 1.2%, to 778.94. It’s down 14% this year and is off 50% from its October 2007 record high.
The Nasdaq composite index slumped 25.15 points, or 1.7%, to 1,442.82. It’s 9.6% above its November trough even after falling 8.5% this year.
The Dow was dragged down by sharp losses in its financial stocks, including Bank of America and Citigroup, which each sank 14% to fresh multiyear lows. American Express dropped 8.7%, and JPMorgan Chase gave up 4.2%.
An index of 24 banking stocks lost 6.8% and is down 51% this year.
A continuing chorus of predictions of bank nationalizations has kept investors anxious about the industry.
“The average man on the street has lost a lot of confidence and is very worried about the economy and investment outlook,” said Alan Skrainka, chief market strategist at Edward Jones in St. Louis. “They believe things are getting worse.”