Stocks “plunged” yesterday led by financials, energy and materials, as a frantic “flight” from risk or from this bear market prompted investors to sell now and ask questions later!
Deepening economic fears drove the Toronto Stock Exchange down by 8% and the Standard & Poor’s 500 index to the lowest level since the spring of 1997 (11 ½ years) in turn, erasing the gains from the prior bull market.
The S&P 500 is now more than 52% below its October 2007 record high. The current bear market is the 2nd biggest on record and has only been exceeded by the 83% drop between 1930 and 1932.
Investors are looking for “light at the end of the tunnel and not seeing anything.”
Oil fell below $50 U.S. a barrel, taking energy shares down along for the ride. With economic data “fueling” concerns of a long and deep global recession investors expect fuel demand to decline significantly (apparently some large oil companies are simply storing oil in oil tankers in various ports until conditions improve).
Goldman Sachs increased its recession estimates this morning, saying gross domestic product (GDP) is declining at a 5% annual rate in the current quarter and will drop to 3% and 1% in the next two quarters. They also said that unemployment will reach 9% by the fourth quarter of next year.
Yesterday GM and Ford shares rebounded from “multi-decade” (okay, all time lows – Ford went public at $1 and now trades at $1.30) lows after U.S. senators reached a “bipartisan” agreement on a government bailout (which means they will revisit the issue in December versus January).
A bright spot emerged after the bell yesterday when shares of Dell rose 6.3% after the world’s No. 2 PC maker reported stronger than expected earnings as cost cuts offset lower revenue.
Citigroup is the latest bank in the ‘spotlight’ as its stock price slumped below $5 (23% of all the stocks in the S&P 500 are trading below $10) and today the board is meeting in order to review all options (including a merger – maybe a sale to the government, just like AIG?).
I would expect short-covering today (options expire the 3rd Friday of the month or today) and some bargain hunting.
Wilfred Vos Bcs, CFP, FMA, FCSI, CIM, CFA, MBA, DMS, CBV
SVP & Partner
