Thursday, February 21, 2008

Staring Down the Abyss at Economic Hell

Investors took some rather sobering economic news in stride on Thursday and did what most sensible equity managers would do: they sold stocks in earnest.

All of the major indices fell at least 1% on the day, and of the 30 Dow stocks, only three - AT&T (T), Wal-Mart (WMT) and Verizon (VZ) showed gains. Verizon was the most profitable, though up a mere 0.12 points.

Dow 12,284.30 -142.96; NASDAQ 2,299.78 -27.32; S&P 500 1,342.53 -17.50; NYSE Composite 8,977.73 -96.23

What sent traders scurrying for the sell button were two reports which confirmed that US economic growth continues to slow. The Conference Board's Index of Leading Economic Indicators fell a meager 0.1% in January, but the significance was that it was the fourth straight monthly decline.

What also roiled markets was the reading from the Federal Reserve Bank of Philadelphia's general economic index, which declined to -24 in February from -20.9 in January.

Particularly troubling was that the Fed's regional report followed a similarly dour outlook from the NY Fed last week, which fell into decline for the first time in over three years.

Selling was as broad-based as any of the numerous fire sale days this winter, with decliners overwhelming advancing issues, 4479-1788. New lows pounded new highs, 249-115.

The major stock gauges continue to slide back toward their January 22 lows. The close on the Dow is just 311 points that point, or roughly one or two good sell-offs away from retesting that critical point.

Bear market deniers abound especially at places like financial news network CNBC and the popular website, though indications are fairly clear that lows will soon be retested and another round of selling will commence, taking stocks even lower.

Of course, government officials are reluctant to make claims which might alarm the general public or even the investor class, though they've been heard lately to begrudgingly grumble over generally souring conditions.

It's never fashionable to predict gloom and doom, though staring into the abyss at economic hell can have a sobering effect. One begins to pay attention to things far afield from stock prices, like traffic at malls, the price of cream cheese or how often the neighbors go out to dinner.

Pinching pennies and foregoing some level of self-pampering does have a satisfactory outcome at week's end. One's bank account may be a bit fuller, bills not so pressing and the change in the jar takes on a new, eerie glitter.

Americans haven't completely forgotten how to save, they just haven't had to recently. It's likely a trend that will gain considerable traction as time and the economy continue to grind slower.

Light, sweet crude for April delivery dropped $1.47 to settle at $98.23, somewhat of a relief after two days over the century mark. Gold set another record high, gaining $11.40 to $949.20. Silver rose 19 cents to a multi-year high of $17.95.

Volume on the exchanges remained moderate.

NYSE Volume 3,707,656,500
NASDAQ Volume 2,285,995,250

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