The Entire Market Plunged: What You Need to Know
Aug 8th 2011 5:50PM
Updated Aug 8th 2011 5:52PM
Every day that the market is open, we Fools are diligently keeping an eye on the big moves happening in the stock market and giving readers the inside scoop on what's driving those price swings.
Normally, my fellow Fools and I are explaining how a great earnings report sends shares soaring or lackluster guidance from management caused investors to run for the hills. But what happens when a big macro event takes place, causing massive selling throughout the market and causing jittery investors to sell almost indiscriminately? Well, you have what we saw today.
After the market closed on Friday, debt-ratings company Standard & Poor's dropped the United States' credit rating from a perfect AAA to AA+. Following a brutal week of selling last week that left many investors fearful and shell-shocked, this set us up for an absolutely crazy trading session today, with market indexes falling drastically and steadily throughout the day and market volatility skyrocketing.
Overall, a jaw-dropping 94% of the NYSE stocks -- or 3,958 of 4,226 -- were down today, while a similar percentage of Nasdaq stocks were wallowing in the red. Every single stock in the S&P 500 decreased in value today as well.
Stocks getting served
For some stocks, there was some legitimate news out today that provided additional fuel for investors to jam on the sell button like an insane version of Whac-A-Mole. OfficeMax, for instance, was downgraded by Goldman Sachs to "neutral" from "buy." Meanwhile, China Yuchai (NYS: CYD) released earnings that were short of expectations.
But many, many, many, many more stocks were simply plummeting on concern over the ratings downgrade, the U.S. economy, and a gargantuan helping of fear. It's hard to be a winner when the broad markets are down more than 6%, but some industries fared worse than most.
Investors weren't too confident about U.S. banks to begin with, but with bold, dire proclamations about the economic outlook proliferating and the value of U.S. debt being called into question, banks and the broader financial sector took an absolute pounding today. Citigroup (NYS: C) lost as much as 22%, JPMorgan Chase (NYS: JPM) shed more than 10% at one point, E*TRADE's (NAS: ETFC) loss peaked at 17%, and Regions Financial (NYS: RF) dropped as much as 17%.
If the economy hits the skids and plunges back into a recession, that would be very bad news for industrial companies that are highly tied to the strength and direction of the economy. Investors were obviously freaking about this potential today as Manitowoc, Terex, Chicago Bridge & Iron, and USG all saw declines of 10% or more.
As long as we're worrying specifically about the economy, let's not forget that a global economy that's not growing is one that's not demanding more energy and pushing up prices for oil, natural gas, and coal. Fearing that energy prices will continue to fall and take a bite out of companies' profits in the sector, investors clobbered a broad array of energy stocks today, including SandRidge Energy (NYS: SD) , Tesoro, W&T Offshore, and Transocean (NYS: RIG) .
Is that blood in the streets?
Those industries had some of the most severe bloodletting, but they were far from alone. Economic concerns spare no one, so investors weren't shy about hitting the sell button on stocks in every other market sector as well.
In other words, there was no hiding out from the chaos today. By the time the smoke cleared, the S&P 500 had lost 6.7%. Since July 22, the index has shed a whopping 17%.
With those numbers in mind, I think investors need to ask themselves whether in the course of just over two weeks the outlook has really changed that drastically. Sure, the U.S. now has an AA+ rating from S&P rather than AAA, but that rating was already under negative review. Certainly there are real concerns about the state of the United States' financials, but those numbers haven't undergone any catastrophic change in the past couple of weeks. And although the economy hasn't looked stellar lately, we had some nice upside surprises last week, including better-than-expected employment numbers.
This isn't a repeat of 2008. We're still picking through the rubble of the financial crisis, but we're definitely not sitting atop that wacko bubble. Equity valuations are much lower than they were. And, maybe most importantly, fear and uncertainty, rather than greed and confidence, have been dominating most investors' psyches.
Panic is contagious, so take some deep breaths, turn off the TV, and hide the ticker feed. Today's plunge may not be the end of this sell-off, but I'm willing to bet that when we look back in retrospect, it will look like a better time to have been a long-term buyer than a panic seller.
In the meantime, if you're looking to beef up your watchlist to take advantage of the market's sell-off, you can check out these 13 high-yielding stocks that my fellow Fools think are great buying opportunities.
At the time this article was published The Motley Fool owns shares of JPMorgan Chase and Transocean. Motley Fool newsletter services have recommended buying shares of USG. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.Fool contributor Matt Koppenheffer has no financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter, where he goes by @KoppTheFool, or on Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.
Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.