Stocks drop again
February 22, 2008
The stocks, on Thursday the 21st of February, dropped again. This time the cause for the slide was the mounting fear of a recession. The investors were not too keen to go forward with their investments after a manufacturing report aggravated the already existing worry that the US economy is going to be in a recession soon, or probably is in one now.
The broader index of Standard & Poor’s 500 (SPX) took a slide of 1.3 percent while the Dow Jones industrial average (INDU) went down by 1.2 percent. The tech heavy NASDAQ composite (COMP) also took a fall of 1.2 percent. However what surprised most economists was that the Philadelphia Fed index which is a local reading on manufacturing toppled over to -24.0 in this month from -20.9 in the previous month. The economists were surprised because they were expecting a small improvement in the manufacturing sector in the month of February. The negative reading in the manufacturing implies a contraction in the segment.
The Philadelphia manufacturing reading that came out was enough to wipe out all the gains the stock had made in the morning. In the early trading period the stocks were able to gain a bit due to the virtue of the Tech market. The Tech market was doing well at the time as a result of an up gradation of Cisco Company and a positive profit prediction from the makers of the BlackBerry mobile phone, Research in Motion. Research in Motion (RIMM) went further up by 9 percent after the group reconfirmed its fourth quarter profit guidance and took off its net subscription outlook. The Cisco group (CSCO, Fortune500) was able to gain a bit as a result of Citigroup’s offer to buy them rather than hold them. . The Citigroup said that this was because they thought that Cisco offers a good value for long term investors.
Following this Philly report was another similar reading on the manufacturing sector in the New York area. This reading was also a rather drab reading. The New York reading prompted the addition of bets regarding the broader slowdown in the sector.
The massive sell off in stock that followed the report shows that more and more investors are convinced that these weak economic reports, that have come out lately, are hinting towards the possibility of a recession. Some economists however believe that this apprehension is already being combated with by the signs which are actually virtual bargains to be found in sections of the market that have taken a good deal of loss in the recent past.
The main reasons that are adding to the increasing volatility on a day to day basis are the issues concerning the impact of the recession, if it happens, and how deep it would run in the event of its happening. The other important factor which is contributing to the volatility is the massive amounts of stocks that have been sold off in a hard way. This then leads to the value of such stocks attaining decent values.