Everyone knows that the market goes through a correction every once a while. The problem is not everyone knows when. Stocks slumped Tuesday 27th Feb on worries about economic growth at home and abroad especially China.
The Dow dropped 416.02 points equivalent to 3.29%, its biggest one-day point loss in nearly 5 & 1/2 years. The S&P 500 tumbled about 3.5 % and the Nasdaq skidded 3.9 %.
What Caused It
- Chinese market dropped 9 % on concerns that the government was looking to crack down on market speculation that has driven chinese stocks to record highs. There are were also rumors that China is going to impose a high capital gain tax on stock investments. Other Asian markets slumped in tandem. European shares also tumbled.
- Former Federal Reserve Chairman Alan Greenspan said that U.S. economy might slip into a recession by the end of the year.
- Economic indicators showed the biggest monthly drop in new orders for nondefense durable goods, items meant to last 3 years or more.
- Reports indicated that the median price of an existing home fell 3.1 % in January from a year earlier, giving investors more reasons to worry about the housing slowdown hurting the economy.
- Increased violence in Iraq and Afghanistan also alarmed Wall Street.
- The Dow and S&P 500 have each risen 12 % in the past 6 months while the Nasdaq is up 17 %.
Few of the big guns in the tech sector like Google (GOOG) lost 3.5 %, Yahoo (YHOO) lost 3.64 %, Microsoft (MSFT) lost 4.13 % and eBay (EBAY) lost 4.25 %. Chinese stocks got burned badly with CDC Corp (CHINA) losing 11.4 %, Telestone (TSTC) losing 13.97 % and Fuwei Films (FFHL) losing 11.53%.
Those who shorted the Dow (DXD) and Nasdaq (QID) had a smile on their face. Both were up 4.21 % and 4.81 % respectively.
Conclusion: Analysts believe that nothing has changed fundamentally and investors do not need to worry about a bear market. Consumer spending has held up relatively well. The company profits/earnings has been positive. Analysts also believe that this sell-off could give the Feds a reason to lower interest rates which would evidently boost earnings.
Recommendation: Commodities also took a hit and are now trading at a bargain. Alot of stocks are trading at a cheaper prices. For those investors that stayed away from the market, have a question in their mind for sure. Is this a good time to buy? Maybe, maybe not. The point is nobody knows. History shows that after a huge correction, the market trades lightly the next day indicating cautious investors. Any substancial upswing would not occur until day after tomorrow.
(Source: CNN Money)