Market Meltdown on February 17th

The Dow was down almost 4% today and 8.8% for in the last 5 trading sessions.  Even more alarming, it’s less than one point away from breaking through the November low.  The November low is the lowest that the stock market has been in 7 years.  We are again at an alarming place in the economy.  Why are we back where we were?


It kind of snuck up on us.  We are so used to bad news that we have barely noticed until today that the market was on it’s way to new negative records.  Today was a plethora of bad news.


First, Autos.  GM and Chrysler were to submit their restructuring plan to the government.  It didn’t look good at all.  GM, for example, is looking to get another 30 Billion, close 5 more plants, and sell off popular brands like Hummer and Saturn.  One this is for sure, once all of this is over, the auto industry will look much different than it does now.  The terrible news from the autos today was a large part of the decline.


With the signing of the Obama Stimulus Plan, you would think that it would be a good day, right?  Wrong.  No matter what your political views, there isn’t much doubt that the economy as a whole isn’t excited about it.  They believe that what should have been a stimulus plan has turned in to a smorgasbord of odds and ends.  All of these pieces and parts took too much money from the actual economic stimulus so investors don’t feel it will do much of anything.


There were numerous international concerns amidst negative news overseas but we won’t delve in to those too much since the average investor isn’t invested directly overseas.  It should be noted, however, that overseas concerns will affect your portfolio especially those parts of your retirement investments in mutual fund.  BUT, don’t touch your retirement holdings.  Ride out the storm.


Finally, don’t estimate the power of something that seems relatively benign.  Take a look at this quite from Reuters:


Sentiment was further dampened by news that the Securities and Exchange Commission had charged Houston-based Stanford Financial Group with massive alleged fraud involving a multibillion-dollar investment scheme that stretched from Texas to Antigua and around the world.


Investor confidence, especially retail investors like you and I, are rattled when we read stories like this.  In an environment filled with fear, stories like this can be the tipping point for some causing them to cash out.


There were positives today.  First, Walmart reported better than expected quarterly earnings which sent their stock up 3.7%.  Also, this is a good and bad but gold is on the rise again.  This is good if you are invested in gold or a gold etf, but bad news for the market as a whole.  When investors are running to gold, they are scared and that’s the case now.

Personally, I’m quite worried about breaking the November low.  If that happens, we are in uncharted waters.  Some analysts were saying today that if we break the lows, we could be going down to 6000 in the Dow.


Let’s keep our fingers crossed that things get better and we get a bounce that takes us off the lows.

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