Market News: After the Bell
"R" word no longer disguised
RTGAM
You can't say there were no warning signs in the dramatic stock market selloff on Tuesday. If the earlier European downturn wasn't proof enough that investors are growing more skittish about a U.S. recession and its impact on the rest of the world, there was the morning's non-manufacturing index from the U.S. Institute for Supply Management that took the formerly disguised "R" word, spelled it out, underlined it and highlighted it in red.
By the time the selling had ended, major North American stock market indexes had skidded between 2 and 3 per cent, for their worst showing in 11 months. The S&P/TSX composite index closed at 12,931.95, down 326.21 points or 2.5 per cent. The Dow Jones industrial average closed at 12,265.13, down 370.03 points or 2.9 per cent. All 30 stocks in the blue-chip index fell. And the broader S&P 500 closed at 1336.64, down 44.18 points or 3.2 per cent.
Stefane Marion, an economist at National Bank Financial, put things into perspective in a note to clients: "The all-important service sector which accounts for about three quarters of U.S. GDP (or 85 per cent of business sector output) and over two-thirds of payroll employment contracted for the first time in 58 months in January," he said. "This development adds to the evidence already provided by the January payroll data that the U.S. economic expansion has come to an end. Our current forecast is for U.S. real GDP to contract 1.3 per cent in the first half of 2008."
Tuesday's volatility, while high, is no record breaker - and even cautious investors might yawn at the declines. That is because recent stock market activity has been exceptionally volatile. The blog from Bespoke Investment Group does a nice job of quantifying this volatility by looking at the number of days when the S&P 500 has moved up or down by at least 1 per cent (which is generally considered a big move).
"Over the last 20 trading days, the S&P 500 has risen by at least 1 per cent seven times and declined by more than 1 per cent on eight occasions. This makes a total of fifteen 1 per cent days over a 20 day period," said the blog's writer. The blog item was posted at 12:38 p.m. EST, so there is no word on whether the tally included Tuesday's volatility.
In the link to the chart, you can see how unusual things are. There have been only a few occasions with this sort of volatility: the bear market of 2002, the dot-com downturn at the turn of the century and the recession of 1990.
Copyright 2001 The Globe and Mail
