Tuesday, August 25, 2015
Staff/wire report
YOUNGSTOWN
The message is clear and simple: Wait out this downturn in the stock market, financial analysts say. U.S. stocks slumped again Monday, with the Dow Jones Industrial Average plunging more than 1,000 points at one point in a sell-off that sent a shiver of fear from Wall Street to Main Street.
“We should not be concerned because it is not something that is pointing toward a recession, and it will not wipe out your portfolio,” said Mekael Teshome, PNC Bank economist.
Stocks regained some of the ground lost as the day wore on, but the Dow finished the day down 588 points. The slump – part of a global wave of selling triggered by the slowdown in China – reflected uncertainty among investors over where to put their money when the world’s second-largest economy is in a slide.
“What’s a company that’s doing business with China actually worth right now? When you’re not sure, you tend to sell,” said JJ Kinahan, TD Ameritrade’s chief strategist.
The Standard & Poor’s 500 index also fell sharply shortly after the opening bell, entering “correction” territory – Wall Street jargon for a drop of 10 percent or more from a recent peak. The last market correction was nearly four years ago.
“These types of corrections are normal,” Teshome said. “These happen periodically. It is long overdue. We haven’t had a correction in years.”
In addition to the concern over China’s slowing economy, economists and investors said there also is a fear over the upcoming Federal Reserve interest-rate increase. In addition, PNC says the concern over the dramatic drop, more than 50 percent, in oil prices year over year has helped lead to a volatile market.
Positives in the U.S. economy, including job growth, housing and auto sales, show this is not a sign of a weakness in the economy, PNC explained in its Market Update released Monday.
“We do think it will turn around,” Teshome said.
The impact of the concerns with the Chinese economy could affect U.S. trade.
“China is a big importer, buyer of [other] commodities and energy,” said George Mokrzan, senior economist at Huntington Bank. “If they reduce the demand, that will put downward pressure on the prices. Producers are already hurting on the price decline.”
U.S. treasuries surged as investors bought less-risky assets. Oil prices fell, but investors also saw opportunity, moving fast and early to snap up some bargains. That helped trim some of the market’s earlier losses.
Jon Arnold, president of the Canfield-based J. Arnold Wealth Management Co., said the “overreaction to the international markets” actually will help the U.S. stock market because the four U.S. regulatory authorities here will help attract international investment.
“Investors will go where the money is,” he said.
U.S. investors should be “extremely ecstatic” because of the bargains on stocks.
The Dow fell 588.47 points, or 3.6 percent, to 15,871.28. The S&P 500 index slid 77.68 points, or 3.9 percent, to 1,893.21. The Nasdaq composite shed 179.79 points, or 3.8 percent, to 4,526.25 points. The three indexes are down for the year.
“There is a lot of fear in the markets,” said Bernard Aw, market strategist at IG.
The sell-off triggered worries in corporate boardrooms, in government capitals and among ordinary Americans young and old who have been saving for retirement or a down payment on a house.
“I don’t think it will have a huge effect on those not close to retirement,” said Mike Ciccone, partner at Diamante Capital Partners, a Poland-based private investment firm. “People should be more concerned if they are older, but if their advisers have positioned them correctly they should be in a more-conservative situation.”
Arnold suggested to stay away from the international market and focus on blue-chip stock, or stocks from the larger companies with solid reputations, for 401(k)s.
Heightened concern about a slowdown in China already had shaken markets around the world Friday, driving the U.S. stock market sharply lower. The rout continued Monday as China’s main stock index sank 8.5 percent.
The Dow plummeted 1,089 points within the first four minutes of trading as traders dumped shares. But the fire sale was short-lived. A wave of buying cut the Dow’s losses by half just five minutes later.
The U.S. market slide was broad. The 10 sectors in the S&P 500 headed lower, with energy stocks recording the biggest decline, 5.2 percent, amid a continued slump in the price of oil. The sector is down almost 25 percent this year.
Stocks have been on a bull run for more than six years, after bottoming out in March 2009 in the aftermath of the financial crisis and the Great Recession.
China growth concerns aside, U.S. stocks have been primed for a sell-off for several months, said Jim Paulsen, chief investment strategist and economist for Wells Capital Management.
“I’ve been of the view since late last year that this market is in a vulnerable position,” he said. “It’s gone almost straight up for six years.”
Stocks have kept climbing even as corporate earnings growth has slowed.
The price-earnings ratio for the S&P 500, a measure of how much investors are willing to pay for each dollar of company earnings, climbed as high as 17.2 in March. That was the highest level in at least a decade, according to data from FactSet.
Worries about a China-fueled global economic slump sent markets overseas lower, as well.
In Europe, Germany’s DAX fell 4.7 percent, while the CAC-40 in France slid 5.4 percent. The FTSE 100 index of leading British shares dropped 4.7 percent.
In Asia, Japan’s Nikkei fell 4.6 percent, its worst one-day drop since in more than 21/2 years. Hong Kong’s Hang Seng index fell 5.2 percent, Australia’s S&P ASX/200 slid 4.1 percent and South Korea’s Kospi lost 2.5 percent.
The Shanghai index suffered its biggest percentage decline in 8 1/2 years. The market has lost all its gains for 2015, though it is still more than 40 percent above its level a year ago.
Analysts expect the market will be flat today.
“I think long term we will see somewhat of a flat market until we see what happens in China and what the Feds do,” Ciccone said. “Once we get through this little bit of turmoil, we will be pretty consistent going forward. I think overall we will be fine.”
Contributor: Kalea Hall, staff writer