Stock prices plunged on Wall Street today, fueled mainly by data that showed the economy is not growing as fast as once believed.
The report, from the Institute for Supply Management, said that its index of business activity remained steady at 50.5 in August, below analysts' expectations of 51.8. An index above 50 signifies growth.
Several other factors also influenced a 355.45-point drop in the Dow Jones industrial average, along with the large declines in the Nasdaq and Standard & Poor's indexes.
For some perspective, SunSpot sought the insights of Andy Brooks, vice president and head of equity trading at T. Rowe Price Inc. in Baltimore; Walter Clark, president and chief executive of Clark Capital Financial Inc. in Columbia; and Mark V. Dyer, senior vice president-investments with Ferris, Baker, Watts Inc. in Hunt Valley.
How do you read today's plunge on Wall Street?
Brooks: We continue to get mixed economic signals: The purchasing manager's report was unchanged from July. ... We had weaker markets overseas, futures were down -- that pushed us down right out of the gate. Then, the ISM report came out, and the market dropped 100 points.
Clark: There was a lot of end-of-the-month window-dressing, when mutual-fund managers sell their losing stocks and buy winning ones to make themselves look good. There was still some activity from that.
Then came the ISM report. The numbers showed that demand for new orders wasn't strong. Those numbers are a key indicator of future growth, but they showed that we're not having a strong economic recovery.
Dyer: There was the weak ISM manufacturing report, the downgrade of Citicorp [by Lehman Brothers Inc., which led the stock to fall $3.35, to $29.40] and increased fear of war with Iraq. ... The malaise of the last two years continues. The economy is not fully recovered yet.
What message is the market sending?
Brooks: The market is saying that there's an overall concern about the strength of the economic recovery. The forecast from companies [on corporate profits] is very cautious -- some are being overly cautious, but they have to be in this environment. And, when you combine those factors, the outlook [for economic growth] is not so rosy.
Clark: The market is saying that, indeed, we are in very fragile times, as far as the economy is concerned, and we have to be careful to not tip our hand and start off another recession.
Traditionally, September is not a strong month for the stock market. Does today's plunge portend a losing fall?
Brooks: I don't know. This is the first trading day of September. Historically, fall is an anxious time -- the '87 stock market crash was in the fall, and, of course, you have last September. We're coming into an interesting time.
Clark: With all the surprises we've had this year, a lot of the data we've used in the past has to be thrown out. ... August usually is a slow month, but we had a pretty active month, with the corporate certifications, economic indicators and all.
Now, you have the window-dressing, concerns about a strike against Iraq and the ISM report. With those factors, you may have a slow September start.
But I wouldn't hold to that, either, because there has been so much change in the market.
What does the market need to improve?
Brooks: Investor confidence needs to be rebuilt, and we need to have more consistency in the economic news that's coming out. I think the market's very anxious at this point.
Clark: The market needs the confidence that growth in the U.S. economy is picking up. When that happens, corporate profits should be growing -- and that will roll over into the markets.
We also have to keep interest rates low -- and we don't need any more corporate scandals.
Dyer:The economy needs to demonstrate that it has regained its footing. Alan Greenspan did NOT lower interest rates at the Federal Reserve's last meeting because he sees signs of a better economy. Interest rates are very low now -- and it's putting lots of money into the economy.
With such a volatile stock market, influenced by so many factors, what's Joe Q. Investor to do?
Brooks: Be careful and buy good companies. There are a lot of high-quality companies out there who have retraced their growth from the '90s. There are a lot of opportunities out there for people to get involved with these companies.
Clark: He has to look long term, and if you have the money to invest, you have to fully exercise the noting of buying low and selling high. Historically, the pattern of the market is strong.
There was the recession in 1991, and if you were an investor in 1992, and remained throughout the bull market, you did exceptionally well -- even with the recent downturn.
Joe Q. Investor can't be looking for a quick play here. This is a great opportunity to buy a great stock at a great price and hold on to it as it grows.
Dyer:He has to focus on balancing your portfolio with a variety of investments, buy stocks with solid earnings and make sure you have investments that are giving good income.
The report, from the Institute for Supply Management, said that its index of business activity remained steady at 50.5 in August, below analysts' expectations of 51.8. An index above 50 signifies growth.
Several other factors also influenced a 355.45-point drop in the Dow Jones industrial average, along with the large declines in the Nasdaq and Standard & Poor's indexes.
For some perspective, SunSpot sought the insights of Andy Brooks, vice president and head of equity trading at T. Rowe Price Inc. in Baltimore; Walter Clark, president and chief executive of Clark Capital Financial Inc. in Columbia; and Mark V. Dyer, senior vice president-investments with Ferris, Baker, Watts Inc. in Hunt Valley.
How do you read today's plunge on Wall Street?
Brooks: We continue to get mixed economic signals: The purchasing manager's report was unchanged from July. ... We had weaker markets overseas, futures were down -- that pushed us down right out of the gate. Then, the ISM report came out, and the market dropped 100 points.
Clark: There was a lot of end-of-the-month window-dressing, when mutual-fund managers sell their losing stocks and buy winning ones to make themselves look good. There was still some activity from that.
Then came the ISM report. The numbers showed that demand for new orders wasn't strong. Those numbers are a key indicator of future growth, but they showed that we're not having a strong economic recovery.
Dyer: There was the weak ISM manufacturing report, the downgrade of Citicorp [by Lehman Brothers Inc., which led the stock to fall $3.35, to $29.40] and increased fear of war with Iraq. ... The malaise of the last two years continues. The economy is not fully recovered yet.
What message is the market sending?
Brooks: The market is saying that there's an overall concern about the strength of the economic recovery. The forecast from companies [on corporate profits] is very cautious -- some are being overly cautious, but they have to be in this environment. And, when you combine those factors, the outlook [for economic growth] is not so rosy.
Clark: The market is saying that, indeed, we are in very fragile times, as far as the economy is concerned, and we have to be careful to not tip our hand and start off another recession.
Traditionally, September is not a strong month for the stock market. Does today's plunge portend a losing fall?
Brooks: I don't know. This is the first trading day of September. Historically, fall is an anxious time -- the '87 stock market crash was in the fall, and, of course, you have last September. We're coming into an interesting time.
Clark: With all the surprises we've had this year, a lot of the data we've used in the past has to be thrown out. ... August usually is a slow month, but we had a pretty active month, with the corporate certifications, economic indicators and all.
Now, you have the window-dressing, concerns about a strike against Iraq and the ISM report. With those factors, you may have a slow September start.
But I wouldn't hold to that, either, because there has been so much change in the market.
What does the market need to improve?
Brooks: Investor confidence needs to be rebuilt, and we need to have more consistency in the economic news that's coming out. I think the market's very anxious at this point.
Clark: The market needs the confidence that growth in the U.S. economy is picking up. When that happens, corporate profits should be growing -- and that will roll over into the markets.
We also have to keep interest rates low -- and we don't need any more corporate scandals.
Dyer:The economy needs to demonstrate that it has regained its footing. Alan Greenspan did NOT lower interest rates at the Federal Reserve's last meeting because he sees signs of a better economy. Interest rates are very low now -- and it's putting lots of money into the economy.
With such a volatile stock market, influenced by so many factors, what's Joe Q. Investor to do?
Brooks: Be careful and buy good companies. There are a lot of high-quality companies out there who have retraced their growth from the '90s. There are a lot of opportunities out there for people to get involved with these companies.
Clark: He has to look long term, and if you have the money to invest, you have to fully exercise the noting of buying low and selling high. Historically, the pattern of the market is strong.
There was the recession in 1991, and if you were an investor in 1992, and remained throughout the bull market, you did exceptionally well -- even with the recent downturn.
Joe Q. Investor can't be looking for a quick play here. This is a great opportunity to buy a great stock at a great price and hold on to it as it grows.
Dyer:He has to focus on balancing your portfolio with a variety of investments, buy stocks with solid earnings and make sure you have investments that are giving good income.