By Clyde Noel
Investors started another bone-jarring week with a 200-point drop in the Dow. It’s a continuation of the 300-point drop last Friday, with the Dow below 7,500 early Monday morning.
With the third-quarter books closed, investors remain worried about the same issues: sluggish economic growth, the possibility of war with Iraq, and company profits that are not showing any promise.
Are we in a panic? It may seem that way, but we aren’t. Today, every pessimistic earnings forecast is another bump in the road that makes our teeth rattle and the stock indexes fall some more.
Is there anywhere for an investor to hide? The safe stocks, the so-called widows and orphans stocks, are carrying a great risk. Pharmaceuticals, utilities, phone companies and energy are trailing the overall performance of the Dow Jones industrials average this year.
Which leaves us to think, if you want to stay in the stock market, better start thinking soup, toothpaste, diapers and beer. Even in a depression, people still eat, brush their teeth, take care of the children and drink a cheap “pepper-upper.”
For the week, The Dow Jones industrials fell 285 points, the Nasdaq composite dropped 22 points, and the Town Crier stock index was negatively flat, losing 0.86 percent, but down 41.12 percent since Jan. 1. Nvidia, the largest loser, is down 87.2 percent since Jan. 1.
The bombardment of negative pre-announcements has led to widespread slashing of fourth-quarter and even first-quarter 2003 earnings estimates, especially in stocks listed on the Town Crier index.
What seems to keep this country going is the home mortgage refinance market as millions of Americans are taking advantage of the low rates. Many homeowners have refinanced their home several times.
With the latest mortgage rate under 5.9 percent, it is bringing out a new group of old mortgages with a lot of appreciation in the home. Statistics show when borrowers take cash out of their homes, the pattern has been to use about 35 percent of the proceeds to pay down non-mortgage debt and spend the rest on durables such as new cars and appliances and have the kitchen and bath redone. Or, buy a big new SUV to go to Palm Springs for the winter.
Since consumer spending accounts for two-thirds of U.S. economic activity, this could be a shot in the arm for the economy. If the Fed drops the rate another half-point, additional refinancing could boost corporate profits, stock prices, confidence and, finally, capital spending.
We have to keep one thing in mind. Things will never be the same, and neither will the stock market. The buy-and-hold-forever mentality is a thing of the past.
