DJIA 15482.82 Down over 1100 points from the 16588.20 all-time high.Well the venerable index's decline added another 110 points from there and toward the end of the day there really was a stink of fear as a bottom note to the high-buck cologne. Additionally, this was too measured a decline for my jaded tastes. The day's chart looks like the slope of a bunny hill.
This is where the animal spirits kick in, in this case the spirit is fear....
Here are some folks who don't think of charts in terms of bunny hills and double black diamonds, from Barron's Stocks to Watch column:
Dow Industrials Tumble 300 Points as Investors Rethink Their Assumptions
If January’s selloff was all about the emerging markets, February’s is all about the U.S, as fears of a weaker economy have helped drag down 3M (MMM), United Technologies (UTX), General Electric (GE), Whirlpool (WHR) and Kansas City Southern (KSU).Here's the chart, from Yahoo Finance:
The Dow Jones Industrial Average fell 326.05 points, or 2.1%, to 15372.80–the largest one-day drop since June, 2013–as companies that were supposed to benefit from a pickup in the U.S. economy have fallen. 3M dropped 3.4% to $123.90, United Technologies fell 3.4% to $110.16 and General Electric declined 3.1% to $24.35. The S&P 500, meanwhile, finished down 2.3% to 1,741.89 as Whirlpool fell 5% to $126.69 and Kansas City Southern dropped 5.1% to $100.25.
The catalyst for the selloff: A far weaker-than-expected ISM manufacturing report, which called into question whether the U.S. economy would, indeed, gather speed as many expect. The market, however, was primed for such a selloff, however, by last month’s emerging-market fears–as well as by the Fed’s decision to cut back on its bond buying. BlackRock’s Russ Koesterich explains:
As expected, the Fed announced it would reduce the size of its monthly asset purchases by an additional $10 billion (from $75 billion in January to $65 billion), continuing the tapering process it began last month. In our view, the central bank’s quantitative easing program was effective in helping to stabilize financial markets, but it did not accomplish its stated goal of strengthening the labor market. The Fed’s actions were not unexpected and represent a step in the direction of less-easy monetary policy. Although policy is by no means tight, and the Fed is committed to keeping short-term rates near zero for the foreseeable future, tapering does mean that Fed policy is less of a tailwind for stocks than it was in past years. As such, equity markets will need to rely more on fundamentals and less on Fed policy to continue to make gains.Deutsche Bank’s David Bianco explained before today’s selloff that the recent market dip has been “justified.” He writes:
We see 3 reasons why the S&P fell 4% to 1774: 1) PEs a bit above normal, especially ex. mega-caps, as VIX flirted with a multiyear low, 2) 4Q results coming in healthy, posting best EPS and sales growth in 2 years, especially at non-financials, but those expecting big beats and raises were disappointed, and 3) EM FX volatility and related EM growth scares reminded investors of the risks from normalizing monetary policy across asset classes and economies. Like most sell-offs this one hasn’t come without a reason, but the new news doesn’t change our core thesis of normal EPS growth, normal PEs, normal volatility (possibly a bit higher) and near normal returns for the S&P in 2014....MORE
