Manufacturing takes big hit in stock slide

By Karl Henkel

khenkel@vindy.com

YOUNGSTOWN

Friday marked the second-consecutive day the Dow Jones Industrial Average closed with gains.

That hadn’t happened in more than a month, when the Dow had a four-day winning streak to close June.

But whether the financial markets are out of the water — after suffering through a tedious, down-to-the-wire fiscal debate, the nation’s first credit downgrade and disappointing economic reports — is still up for debate, analysts say.

“That’s impossible to know,” said Robert Gardner, CPA and financial adviser with Stifel, Nicolaus & Co. Inc., Butler Wick Division in Canfield.

“We live in a 24-hour news cycle where we are constantly being bombarded with news, much of it bad. When news comes out, especially bad, traders tend to shoot first, or sell off, then wait to sort out the facts.”

What has been undeniable, however, is the significant impact the volatile market has taken on some important sectors of the nation’s economy, most notably manufacturing.

A closer look provides insight on the driving factors behind the stock slides, which started July 21, and fluctuated at record rates last week. Beginning last Monday, the Dow had a net change of more than 400 points for four straight days, a first-of-its-kind series of events.

Among the companies that slid the worst were those in the manufacturing sector, which had previously helped to lead the U.S. out of the recent recession. But in recent weeks, they have taken a beating on Wall Street.

Their losses have been more than the Dow’s average dip of about 12 percent since its yearly high of 12,810 points on April 29. (The Dow’s yearly low stands at 10,809.95 last Mnday.)

Value in shares of manufacturing-related companies like The Home Depot, Caterpillar Inc., and Alcoa Inc., have decreased by nearly 20 percent since July 21.

Cleveland-based economist George Zeller said it’s the manufacturing sector that has led areas like Youngstown from out of the economic troughs.

This year, Youngstown has been one of the few job-creating regions in the state, a fact Zeller chalks up to a rise in manufacturing.

But to drive the rest of the nation, and the stock market back up, manufacturers will need to recover from double-digit percentage losses. Gardner said that won’t necessarily be a quick process.

“Manufacturing has been a sore spot for the U.S. economy for some time now, as we’ve all noticed jobs flowing overseas to cheaper labor, less regulations,” he said. “The market, too, is obviously concerned, and turning that ship will be difficult and take time.”

Another sector that has taken a big hit is the financial sector.

Big banks such as JPMorgan Chase Co. and Bank of America Corp., the latter which lost as much as 38 percent of its value during the worst of last week’s slide.

Brian Laraway, partner and vice president of Bury Financial Group in Poland, told The Vindicator last week that banks have a lot to work through, which led to investor attrition.

“There’s still a lot of bad debt they need to write off,” he said.

Investors, however, haven’t soured on companies in sectors that include consumer staples, utilities and technology sectors, which haven’t suffered nearly as much deterioration.

Companies like McDonald’s, Coca-Cola Co. and AT&T have seen low-to-moderate value loss.

The reason: Their impacts are more felt in everyday consumer life and therefore are prone to less fluctuation and are less likely to drive the stock market in either direction.

“Consumer staples have historically been a ‘defensive’ sector,” Gardner said. “We all still need the basics regardless of what the economy is doing.”

That’s why it won’t be companies like McDonald’s and Coca-Cola leading the way to financial stability, analysts say but the nation’s base — manufacturing. That could take time.

“A robust recovery and the potential for significantly higher stock prices are less likely than first forecast,” Gardner said.

“Many are confident the recovery will continue, albeit at a slower pace.”