Stock market volatility returns

By Karl Henkel

khenkel@vindy.com

YOUNGSTOWN

The cantankerous Dow Jones industrial average acted up again, falling 419 points amid numerous economic reports and fears.

The 3.7 percent drop, which came after a three-day stretch of relatively stable trading, could have ended much worse.

“I don’t think the sky is falling,” said Flonnoya Franklin of FJF Wealth Management in Youngs-town. “But it’s cloudy.”

At one point, the Dow fell as many as 528 points from Thursday’s open of 11,406.27, which could have been one of the 10 worst days in its history.

August already has seen three trading days appear on the list of the 10 worst of all time, an astonishing accomplishment considering August is normally a quiet month, Franklin said.

“It’s usually kind of a lull,” he said. “August has never been a big push in the market.”

But it happened again Thursday, with the markets taking hit after hit, beginning with a roughly 300-point drop during the first minutes of trading. The reasons were abundant, but analysts said it was the culmination of many things, and for no one reason in particular.

Reason No. 1: In Europe, stocks plunged.

Societe Generale fell 12 percent in Paris, and Barclays dropped 11 percent in London. Germany’s DAX index fell 5.8 percent.

In Asia, Japan’s Nikkei Stock Index fell 1.3 percent, and China’s Shanghai Composite softened 1.1 percent.

Reason No. 2: For the first time in a month, unemployment claims exceeded 400,000.

There were 408,000 initial unemployment claims filed last week, up 9,000 from the week before and higher than many analysts had predicted.

The four-week average also stands above 400,000, a number Cleveland-based economist George Zeller said was too high for any significant economic growth.

“It’s [400,000] the magic dividing line between growth and loss,” he said. “If you’re at about 370,000 or so, you might be getting a little growth, but it’ll be weak.”

Zeller said unemployment claims of 350,000 or less could signal a sign of solid recovery.

Then came reason No. 3: the inflation report.

The U.S. Consumer Price Index rose 0.5 percent in July and 3.6 percent since the same month in 2010.

Zeller said inflation percentage increases that are too low — such as in previous months — represent a potential for deflation and could be a sign of an economic catastrophe.

“You don’t normally see deflation except during a depression,” he said.

And if things couldn’t get any worse, the Philadelphia-area manufacturing index in August fell to the lowest level since spring 2009, when the U.S. was knee-deep in recession, according to the Federal Reserve Bank of Philadelphia.

Franklin said the manufacturing report was one of the “biggest disappointments of the day.”

“They didn’t use the whole month to make their indication,” he said. “Manufacturing could have held up hiring for a couple of weeks due to the volatility of the market the last few weeks.”

Oil fell $5, the average mortgage rate stumbled to its lowest point in four decades, and the 10-year Treasury hit its lowest yield.

The sharp market decline meant more investors once again looked to gold, which spiked to $1,830 a troy ounce, a record.

Tarick Bernat, president of American Financial Services in Boardman, said that with gold’s value continuing to rise, there’s a chance investors could get burned in the long run, and not solely from selling off stocks during a down market.

“People are dumping so much money into gold right now,” he said. “Investors should still be diversified.”