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Dow is undergoing a minor correction

Update: My original title said major correction, but it really isn't. Four hundred sixteen points is not much of a correction for a market that's above 12,000 points.

It's now down more than 500 points:

NEW YORK (AP) -- The Dow Jones industrial average is down more than 500 points with about an hour of trading left today. The Nasdaq Composite is off more than 100.


A 9 percent slide in Chinese stocks, which came a day after investors sent Shanghai's benchmark index to a record high close, set the tone for U.S. trading.


Investors' confidence was knocked down further by data showing that the economy may be decelerating more than anticipated. A Commerce Department report that orders for durable goods in January dropped by the largest amount in three months exacerbated jitters about the direction of the U.S. economy, which were raised a day earlier when former Federal Reserve Chairman Alan Greenspan said the United States may be headed for a recession.

"It looks more and more like the economy is a slow growth economy," said Michael Strauss, chief economist at Commonfund. "Moderate economic growth is good _ an abrupt stop in economic growth scares people."

The market had been expecting the government on Wednesday to revise its estimate of fourth-quarter GDP growth down to an annual rate of about 2.3 percent from an initial forecast of 3.5 percent, and grew increasingly nervous on Tuesday that the figure could come in even lower.

The housing market, which the Street had been hoping had bottomed out, also looked far from recovery after a Standard & Poor's index indicated that single-family home prices across the nation were flat in December. A later report from the National Association of Realtors said existing home sales climbed in January by the largest amount in two years, but the data didn't erase housing-related concerns, as median home prices fell for a sixth straight month.

A suicide bomber attack on the main U.S. military base in Afghanistan where Vice President Dick Cheney was visiting also rattled the market.

China's stock market plummeted Tuesday from record highs as investors took profits when concerns arose that the Chinese government may try to temper its ballooning economy by raising interest rates again or reducing more of the money available for lending.

"Corrections usually happen because of a catalyst, and this may be it," said Ed Peters, chief investment officer at PanAgora Asset Management. "The move in China was a surprise, and when a major market has a shock it ripples through the rest of the market. With all the trade that goes on with China, there tends to be a knee-jerk reaction with that kind of drop."

The market has been going strong for a while now, so a correction is probably due. If there is a good thing about this, it's that when it's all said and done, there will be many good deals out there. When the Asian market had a huge correction back in the late ninties, it affected the US market then as well, causing some people over here to panic. It was the amateur investor, however, who saved the day by buying up all the major deals, which helped bring the market back up.


Comments (40)

All things being equal, I'd... (Below threshold)
Publicus:

All things being equal, I'd rather not have a "major correction". But, 500 points isn't what it used to be, because it's a much smaller percentage than, say, the big fall in the 1980s. Am I right?

I'm somewhat more worried a... (Below threshold)
PaulJC:

I'm somewhat more worried about a Chinese Financial crisis, myself.

I blame Bush. /tro... (Below threshold)
Old Coot:

I blame Bush.

/troll

Like you Kim..I am an optim... (Below threshold)
nogo postal:

Like you Kim..I am an optimist..however 500 points..is not a "correction" ...the good news is that tens of millions of Americans do not have a direct financial interest in stocks..so ..could care less...
I do not blame Bush...for this drop..
However..I don't want him saying "How great" our economy is going...
My wife and I cashed out our 401's last Aug..to feeble CD's..
We lost nothing today...We don't care about getting more..we just did not want to lose what we had.

Percentage wise this was ju... (Below threshold)
Faith+1:

Percentage wise this was just a blip. Even at today's closing the DJIA is still well over 12000. Remember, that was a record just a couple of months ago. The sky isn't falling, and the market even bounced back to close with just a hair over 400. In reality, it's great time to invest. To compare to the drop back in the 80s it would have needed to drop something like 3000 or 4000, not 400.

The chicken littles need to get a grip and relax.

Just a quick google on the ... (Below threshold)
Faith+1:

Just a quick google on the drop in the 80s. On Monday, Oct. 19, the Dow Jones Industrial Average fell 507.99 points, a drop of 22.6 percent, the largest percentage drop of the DJIA's history, and closes at a record-breaking low of 1,738.74. The media dubs the day "Black Monday."

Todays drop was a 3.29% drop. This is correction and a rather mild one in comparison. It isn't a drop. It closed today at 12216.24--nearly a full order of magnitude higher than Black Monday.

The economy is doing fine -... (Below threshold)
Jo:

The economy is doing fine - just another thing that pisses off the left.

Cool that is just a "blip".... (Below threshold)
nogo postal:

Cool that is just a "blip"...I respect those that use the word "mild"....you folks understand that it is not real money anyway...I know none of you followed the rise to the level from which it fell saying..
"400 points up is no big deal..it is just a "blip up"
...just think of the bargains that will be available tomorrow...buy buy buy...after all..given their puny 40% of our debt..how much power do the Chinese actually have over your net worth?

I THINK ALL THIS BULL AND B... (Below threshold)
TOM:

I THINK ALL THIS BULL AND BEARS IS ALL ABOUT THE BIG WALL STREET CEO'S TRYING TO EARN MORE OF OUR MONEY OR STEALING IT THROUGH THEIR GAME PLAN, WHO CARES WHAT HAPPENS OVER ON THE OTHER SIDE OF THIS WORLD. WE DIDN'T NEED THEM BEFORE THIS AND WE DON'T NEED THEM NOW NO THIS CORRECTION IS ALL THE WORK OF THE BIG ASS CEO'S STEALING OUR MONEY. THE PRICE OF OIL IS CONTROLED BY OUR TRADER'S. TAKE IT OUT OF THERE HANDS AND LET THE BIG BROTHER TAKE CONTROL , AND THE PRICE WILL DROP FAST WHY DO WE NEED TRADERS CONTROLING OUR ENERGY COST WE DON'T NEED THEM. THIS IS ALL A BUNCH OF BULLS SO QUIT INVESTING IN THE MARKET AND SEE HOW FAST WE GET RIDE OF THOSE SO CALLED BIG WHEELS IF YOU DON'T YOUR GOING LOOSE IT ANY WAY

ah..Faith..a simple thought... (Below threshold)
nogo postal:

ah..Faith..a simple thought..if something is less than it was..ah..it may be..ah..a "drop"..
Just check the value of your stocks tomorrow as opposed to today..if they are not less..than in fact it is not a "drop"...but if on paper (remember it is not real money out of your purse)it is lower..it just may be a drop..
Ya know...when I am a Substitute Teacher for a kindergarten class..it never ceases to amaze me how they love to spin..what confuses me..is when adults try the "spin" like they are 5 years old...
But hey..keep spinning..it was fun once..

Aaaargh, I knew when the de... (Below threshold)
Gringo:

Aaaargh, I knew when the democrats came to power this would happen!

"To compare to the drop bac... (Below threshold)
John S:

"To compare to the drop back in the 80s it would have needed to drop something like 3000 or 4000, not 400."

Wait.

Seriously, if you take a chart of the Dow over the past 18 months and overlay it over the Nasdaq in 1999, the curves are almost identical. (Just another equity bubble.) If the curves continued to correlate we'll see the Dow at 2400 by 2009. But I doubt that will happen.

The party is over gang. Bu... (Below threshold)

The party is over gang. Bush's borrow and spend policies are finally coming home to roost. You can only live beyond your means for so long before the markets correct your excesses. There were already indications that the Chinese were losing their appetite for our bonds and now that's going to get worse. Greenspan was right; we are headed for a recession. Slowing growth, increasing inflation, and now Bernanke will have to increase rates in order to keep the foreigners buying. Housing is going to tank even more than it has.


Economy has been in GREAT s... (Below threshold)
Gianni:

Economy has been in GREAT shape for 3-4 yrs.

Anyone who had money in the market lately that hasnt made a ton is an idiot, or has hired one.

fed increasing rates will do what??

Guess you arent a desciple of Friedman.

The party is over gang.<... (Below threshold)
cirby:

The party is over gang.

Yeah, the Democrats got some power, and looked what happened.

Thank God Pelosi was so optimistic about those five-day workweeks (they're lucky to make three, and have had as little as one working day in a week).

If they'd been in there full-time, it could have been a disaster.

The party is over ... (Below threshold)
The party is over gang. Bush's borrow and spend policies are finally coming home to roost. You can only live beyond your means for so long before the markets correct your excesses. There were already indications that the Chinese were losing their appetite for our bonds and now that's going to get worse. Greenspan was right; we are headed for a recession. Slowing growth, increasing inflation, and now Bernanke will have to increase rates in order to keep the foreigners buying. Housing is going to tank even more than it has.


Posted by: Larkin at February 27, 2007 05:47 PM

Wow, another glass-half-empty black pit of despair poster...housing is going to tank even more? I honestly thought the BUBBLE was going to burst for the past 2-3 years and you're saying it's going to tank even more? Based on...what?

Think I'll send in the last... (Below threshold)
Wethal:

Think I'll send in the last $2000 for this year's IRA. Should be a lot of bargains soon. Buy low.

<a href="http://mo... (Below threshold)
Brian:
Making matters worse for investors, former Federal Reserve Chairman Alan Greenspan said at a speech in Hong Kong Monday that the U.S. economy might slip into a recession by the end of the year.

Economic slowdown fears were further fueled by the release of a government report Tuesday morning that showed the biggest monthly drop in new orders for nondefense durable goods, items meant to last three years or more, on record.

Damn, that Clinton recession is coming back!

According to "one who knows... (Below threshold)

According to "one who knows," one of the principale drivers of this recent blip is the accelerating rate of defaults in the "sub-prime" mortgage lending market -- i.e., all the folks who refinanced or bought their homes with sub-prime "no questions asked" mortgage loans and can't pay them off. Since most of the large investment banks went into this big during the past eight years (because INTEREST RATES HAVE BEEN SO CONSISTENTLY LOW), they are now holding paper (having securitized the mortgages in bundles of hundreds or thousands) that is rapidly declining in value.

Housing is going t... (Below threshold)
Housing is going to tank even more? I honestly thought the BUBBLE was going to burst for the past 2-3 years and you're saying it's going to tank even more? Based on...what?

The subprime lenders began to crumble last week. Rising defaults are going to push the housing market down further as people are forced to sell to pay off their non-performing loans. A lot of people leveraged themselves to the hilt with no-money down and negative amortization loans at the top of the market. In addition, there were a lot of people speculating in the hot housing markets who were trying to flip properties and are now underwater. They'll be forced to cut prices and take a loss to get out from under their loans. That will push housing prices down further.

Couple this, with a Fed that is forced to push rates up to defend a sinking dollar and you have a recipe for a major correction in the housing market. This will have a ripple effect in the economy as a whole since the housing bubble and refinancing mania have been supporting consumer spending for the last few years.

These are all consequences of Bush's "weak dollar" policy and the Fed's "easy money" policy. Both policies were designed to stimulate the economy after 9/11 and the 2000 bubble burst and they worked. But now they've run their course and we will see the consequences.

It'll be sort of like a bad hangover after a night of heavy partying.

If, IF housing market slows... (Below threshold)
Gianni:

If, IF housing market slows this yr, that'll be a great buying opportunity, and things will pick up again.

Fed WILL NOT push rates up if economy is slowing, WHAT FRIGGIN SCHOOL DID YOU LEARN THAT AT??

06 housing market was 2nd busiest EVER, YUP, some bubble.

Larkin,Did you mak... (Below threshold)
Clay:

Larkin,

Did you make that up?

WASHINGTON (AP) -- Sales of existing homes rose in January by the largest amount in two years, raising hopes that the worst of the severe slump in housing may be coming to an end. Median home prices, however, fell for a sixth straight month.

The National Association of Realtors reported Tuesday that sales of previously owned homes rose by 3 percent last month, the biggest one- month increase since a 3.3 percent increase in January 2005, a time when housing was roaring toward the peak of its five-year boom.

The median price of an existing home sold in January dropped to $210,600, a decline of 3.1 percent from a year ago. It marked the sixth straight month that the median price has been down compared with a year ago. The January decline was the third-biggest drop in history.

Analysts said that the decline in prices was actually an encouraging sign that home sellers are starting to adjust their asking-price down and this should help speed the correction in housing.

The financial news media... (Below threshold)
David:

The financial news media has been promoting a major correction for at least a month now. I guess corrections become inevitable when the media, particularly CNBC, beat the drum long enough. Yesterday, they reached a climax of negativity and were promoting strategies for dealing with the impending correction. Over the past 18 years I've noticed that they can't stand if things are going smoothly.

Im sure on the alphabet net... (Below threshold)
Gianni:

Im sure on the alphabet networks, it was one of the lead stories.

Good news is never a lead story, bad news, they cant get it out quickly enough.

If you had been around for ... (Below threshold)
John S:

If you had been around for the 1992, 1982 and 1970 housing crashes you'd know that a housing slowdown takes 8 to 10 years to work through. This latest dustup hasn't even begun. They'll be something like 2 million foreclosures between now and 2012. On the subject of Democrats and sheer irony: If they end the Iraq war they will bring on the worst recession in 70 years. The war costs something like $300 million a DAY. Imagine our economy without that government stimulus.

Here's what Greenspan actua... (Below threshold)
Dave A.:

Here's what Greenspan actually said:

"When you get this far away from a recession invariably forces build up for the next recession, and indeed we are beginning to see that sign. For example in the U.S., profit margins ... have begun to stabilize, which is an early sign we are in the later stages of a cycle. While, yes, it is possible we can get a recession in the latter months of 2007, most forecasters are not making that judgment and indeed are projecting forward into 2008 ... with some slowdown."

And here's what Greenspan once famously told Congress:

"I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said."

I'm guessing it's not time to panic.

3.5% is not that large unle... (Below threshold)

3.5% is not that large unless the same correction happens again and again.

However, let me correct some misinformation. After correcting for inflation, 12,000 is not a record high. It would have to be closer to 14,000 to be record in constant dollars.

And for god's sake stop blaming the media for everything. What a bunch of whiners.

Fed WILL NOT push ... (Below threshold)
Fed WILL NOT push rates up if economy is slowing, WHAT FRIGGIN SCHOOL DID YOU LEARN THAT AT??

Gianni - I assume you are too young to recall the stagflation of the late 1970's? Then Fed chairman Volcker ratcheted interest rates up dramatically to choke off the money supply and kill inflation. He did this during a period of time when GDP growth was stagnant.

The Fed's main purpose is to keep inflation under control. They will do whatever they have to accomplish that regardless of the level of GDP growth.

They will also send interest rates higher to defend a sharply falling dollar if they have to. Every country in the world that sees it's currency crumble has to do the same.

Sales of existing homes rose in January by the largest amount in two years,

Clay - One month's statistics aren't particularly relevant. Take a look at the charts of any of the subprime lenders like New Century Financial. They've been chopped in half. What the markets are saying is that there is a huge amount of risk in the subprime market. If the subprime borrowers start to bail out that will increase supply and force housing prices down.

If the subprime bo... (Below threshold)
If the subprime borrowers start to bail out that will increase supply and force housing prices down.

Posted by: Larkin at February 27, 2007 07:58 PM

And this is a bad thing...

And let's see...our GDP is ... (Below threshold)

And let's see...our GDP is around $13 trillion. China's is around $2 trillion. I *THINK* we can ride this out.

Blame Bush, and certainly d... (Below threshold)
Mitchell:

Blame Bush, and certainly don't give him credit for the all-time highs we've hit recently.

But do give credit to Al Bore for saying he supports the environment, while he goes about raping it.

Nice.

Gianni - I assume you ar... (Below threshold)
MikeSC:

Gianni - I assume you are too young to recall the stagflation of the late 1970's? Then Fed chairman Volcker ratcheted interest rates up dramatically to choke off the money supply and kill inflation. He did this during a period of time when GDP growth was stagnant.

You are aware that it infamously backfired, right? The hike didn't really do a heck of a lot for inflationary pressures.

Of course, it took a Democrat to produce an economic condition that was considered to be an impossible situation before it happened.
-=Mike

Wow, the democrats barely g... (Below threshold)
Jo:

Wow, the democrats barely get in the door and all hell breaks loose. Anna Nicole Smith dies and the Dow drops.

Can we have a revote?

You know what the smart inv... (Below threshold)
pgg:

You know what the smart investor is saying today?

"Hmm... the stock market is having a clearance sale. I think I'll go look for bargains tomorrow."

Folks, You gu... (Below threshold)

Folks,

You guys assume you know exactly what is going on. Economists will argue for years about causation of economic moves. It could be the minor issue of sub-prime lenders in trouble. Could be the fact that Chinese stocks were way over valued. Could be a lot of thinks. However, I believe it is simply what it appears to be, the beginning of a correction. The market has steam rolled for several years and a correction has been over due. If someone really needs to pinpoint the reason for "why now" look at rate of buying on margin. The historical graph of margin buying reached an ugly point last week which made today (and the next couple days) inevitable.

This is just the latest of many lessons of asset allocation. If you need the money in the immediate future don't have it above a certain level in equities. If you are looking long term then you can be long equities and survive the fact that the market is not and never has been a straight line.

The investment equity stock... (Below threshold)

The investment equity stock value of the international stockholder's declined by $600 billion dollars today. That's significant.

Larkin you know about as mu... (Below threshold)
jhow66:

Larkin you know about as much about the stock market as I do. Which is nothing.

Kimmie! You didn't blame li... (Below threshold)
astigafa:

Kimmie! You didn't blame liberals! Wow!!!!!

Feel good about yourself; you're heading in the right direction -- ah, the correct direction.

From nogo:"ah..Faith... (Below threshold)
Faith+1:

From nogo:
"ah..Faith..a simple thought..if something is less than it was..ah..it may be..ah..a "drop"..
Just check the value of your stocks tomorrow as opposed to today..if they are not less..than in fact it is not a "drop"...but if on paper (remember it is not real money out of your purse)it is lower..it just may be a drop.."

I'm an investor not a day trader so whether I have less value today than yesterday isn't what I look at. I look at whether what I have today is more than what I had 5 years ago--and by that measure I'm still way up. What I meant by my statement is that this was in no way the same scale of a drop compared to Black Monday. Yes, 5 or 6 days of 400 point drops would be bad but a single day drop of 3% isn't significant in the long term. Compared to 2000--when I first started seriously investing--I'm up nearly 400% overall in terms of overall value. I was down quite a bit after 9/11 but took that opportunity to invest more and it has paid off big. I spent many hours pouring over financial statements, cash flow analysis, 10Ks etc before deciding. It's hard work, but pays off. If I were to buy/sell based on daily fluctuations it would be a waste of time and I'd be better off going to Vegas.

I'm not a big wheeler/dealer stock broker. Most of this is either through 401K or mutual funds. Not a millionaire but I do ok as well.

The reality is a 3% drop is a correction and not a crash or colossal drop. The key was seeing the market rebound nearly 100 points close to closing. It meant the big firms were realizing they were feeding of their own panic and settling down. As of this post the market is already back up 5 points overall indicating the panic is pretty much over--just as I said it would be.

FWIW, the drop is neither a liberal or conservative or even political issue. It's just basic economics and anyone trying to blame either side is doing nothing but indicating that individual's huge economic ignorance. They should not ever invest and stick to low yield CDs.

One good indicator of whether someone has enough of a grasp of economics is whether you receive a tax refund each year and view it as a good thing. If you fall into that category do not invest in the stock market. Ever.

11:00 AM Eastern and the ma... (Below threshold)
Faith+1:

11:00 AM Eastern and the market is already back up over 100 points. The world didn't end, it's still round and spinning.




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