Market experts say stocks could continue falling until they’ve lost half the value from their peak in last year’s bubble heyday – meaning the bottom might be a Dow Jones industrial average at 7,000.
A new economic report yesterday supported such a steep downward spiral by showing a sudden slowdown could hit by Thanksgiving, based on an unexpected doubling of wholesale stockpiles of everything from petroleum and clothing to electronics and cars.
A Commerce Department report said wholesalers had so much excess inventory on hand in August that they likely wouldn’t need to order goods for more than a month.
In turn, that would trigger factory cutbacks, layoffs and slower consumer spending as the economy faces a harsh round of deflation in a prolonged bear market of shrinking growth.
While bear markets are officially triggered by a 20 percent drop, at their worst, they can have a sell-off of 45 percent to 50 percent.
Since the Dow’s record close above 14,000 a year ago yesterday, the Dow has tumbled 5,585.34 points – or almost 40 percent.
Surveys of economists say the economy’s slowdown will be nearly three times worse by the end of the year.
The economy’s pace will shrink at a 0.2 percent rate in the third quarter, but sharply accelerate to 0.8 percent by Christmas.
Stocks took the brunt of the slowdown fear due to weaker corporate profits ahead and frozen credit markets.
It was the seventh straight session of losses as investors bailed from the market in droves, despite new efforts by the Treasury and the Federal Reserve to goose the stalled economy with hundreds of billions in cash.
“We’re way beyond fundamentals. This is just pure panic, that’s all it is,” said Chris Orndorff, head of equity strategy at Payden & Rygel.
The Dow dropped 678.91, or 7.33 percent, to 8,579.19, while the Standard & Poor’s 500 Index lost 75.02 , or 7.62 percent, to 909.92. The Nasdaq tumbled 95.21, or 5.47 percent, to 1,645.12.
Some value investors noted that that the market is so oversold that incredible values may pave the way for a turnaround. However, the fear that hedge funds are being forced to sell to meet redemptions continued to fan fears that more selling could be around the corner.
Meanwhile, the four-week average of new unemployment claims rose to 482,500, the highest since October 2001. The number of Americans continuing to claim unemployment benefits rose to 3.66 million, above analysts’ estimates of 3.6 million. That’s the highest total in more than five years.
paul.tharp@nypost.com
Source: http://www.nypost.com/seven/10102008/business/dont_look_dow_n__133022.htm
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