BWR- Quite a correction from Nov 1 2007

"Keep your emotions out of it. It is going to be a bumpy ride."

Market rout on recession fears TheStar.com - Business - Market rout on recession fears

Shareholders dump stocks in face of writedowns, U.S. retail sales fall and mounting fears of recession

January 16, 2008

Madhavi Acharya
Tom Yew
Rita Trichur
Business Reporters

Just hang on.

If yesterday's steep stock market slide wasn't quite steep enough for you, there's likely more where that came from, veteran market watchers say.

The market gyrations are just part of investors coming to grips with the sour notion that growth in the behemoth U.S. economy is tapering off.

The latest bit of bad news came yesterday with figures from the U.S. commerce department showing that retail sales fell 0.4 per cent in December – the biggest decline in six months and far below the 0.1 per cent growth that economists had been crossing their fingers for.

Evidence that U.S. shoppers may finally be running out of steam – consumer spending accounts for two-thirds of the economy – came as Wall Street giant Citigroup Inc. became the latest to announce huge losses for the quarter along with a massive writedown to deal with bad subprime mortgage investments.

Brace yourself for more today: Adrian Mastracci, a portfolio manager at KCM Wealth Management Inc. in Vancouver, said he expects more market turbulence because of Intel's earnings announcement, which came after markets closed yesterday.

The semiconductor company's latest quarterly profit rose 51 per cent to $2.3 billion (U.S.) but the results missed Wall Street's expectations.

Following the announcement, Intel shares fell more than 14 per cent during after-hours trading.

"The economics in the U.S. are obviously changing for the worst. The earnings expectations are being reduced as we see the economy stumble here," said Aron Gampel, deputy chief economist at Scotiabank.

In Toronto yesterday, the S&P/TSX composite index lost 381.50 points to end the day at 13,316.78. That's a decline of 2.79 per cent on the day – one of the worst one-day losses ever for the premier Canadian market.

In New York, the blue-chip Dow Jones industrial average closed at 12,501.11, down 277.04 points, or 2.17 per cent.

The market has digested a lot of bad news in recent days, leaving investors rattled, said Irwin Michael, a portfolio manager at ABC Funds.

"A lot that goes on in the market now has nothing to do with fundamental analysis. It is strictly psychological," he said. "The more the market goes down, the more people think it is going to go down. It is like a dog chasing its tail."

Faced with America's deepening subprime crisis and lingering uncertainties surrounding this country's market for non-bank asset-backed commercial paper, people are finding it hard to resist the compulsion to panic, he said. The current chill is the flip side to the "white heat" that overtook markets during the first half of last year.

"Now you are facing the other side of the coin," Michael said. "They are just selling willy-nilly, just to get out."

In Toronto, big bank stocks – particularly that of the Canadian Imperial Bank of Commerce – pulled the benchmark index lower. CIBC shares were down $2.07 (Canadian) to $70 on the announcement the bank will sell shares to raise $2.75 billion to shore up its balance sheet.

"Investors have really rediscovered flying away from risk," Mastracci said. "But the reality is it's the risk part that ultimately delivers a return." Panicky investors, he said, ought to take a longer-term approach instead of bailing out of the market completely, because key indexes will eventually rebound.

"Keep your emotions out of it. It is going to be a bumpy ride."