WASHINGTON, Aug. 21, 2015 – After opening down and fading further after several feeble rally attempts, stocks were pancaked in the final hour of U.S. trading on Friday. The Dow Jones Industrials (DJI) closed down 64.84 points, the casualty of a massive selling panic that caught even many professionals off-guard with its intensity.
Other averages quickly followed suit, including the S&P 500 (down 64.84) and the NASDAQ, which was off a whopping 171.45. Today’s super-sized tech stock decline was led by Apple (symbol AAPL), which was down over 5 percent in a single day, closing at 105.76, off over 20 percent from its May highs around $132. Even the hot healthcare and biotech sectors were mercilessly kicked to the curb.
Stocks in all sectors were simply mertilized* in this massive Friday rout, with many major names strewn about Wall Street like so much roadkill. No sector was spared during what seemed to be the second phase of a two-day stock market rout that began in earnest on Thursday with stock and sector declines that proved nearly as bad as today’s.
“Right now there is a feeling of fear in the marketplace and all news is interpreted negatively and it’s interpreted indiscriminately,” said Tom Digenan, head of U.S. equities at UBS Global Asset Management, speaking today to CNBC reporters.
What’s really eating investors this summer? After an epic bull run dating from the sickening March market crash of 2009, the market has arguably grown overpriced and the bull has become overly tired, leaving stocks and averages exposed to severe hits and shorting by bears eager to get their game faces back on.
Added to this fundamental problem, a great deal of corporate “earnings increases” over the last several years can be more easily attributed to rampant corporate stock buybacks, fueled by borrowed money sold to investors at record-low interest rates.
These stock buybacks decrease the “float” or amount of shares publicly available of a given stock. This enables corporate earnings to be factored into fewer and fewer shares, artfully inflating earnings per share and creating the impression that earnings are consistently increasing.
But with the Federal Reserve pulling back on effectively “free” QE money this year, that game is over and investors began to see this quarter that the much-vaunted U.S. “recovery” is largely a mirage. The result? Stocks have been increasingly hit all year and are getting severely punished as the results of this long-running QE game are revealed.
Worse, along with nearly all other resources, oil prices are now plummeting to earth at a record pace in 2015, as oil from the U.S. Bakken, Marcellus and other shale formations, along with Saudi Arabia’s aggressive 24/7 overproduction scheme finds the world now awash in cheap and cheaper oil, something that neither alternative energy fanatics or
global warmists climate change enthusiasts ever managed to foresee.
So, just as the Federal Reserve was planning to “normalize” interest rates gradually upward to historical norms, we now, once again, face the looming specter of deflation, which has stock and bond traders, financial planners, banking and insurance experts, sovereign wealth funds and many other fellow financial travelers pulling back on investment commitments.
Making matters worse, the much vaunted Chinese “miracle” – “laissez faire” capitalism as imposed by an all-powerful, all-wise Communist-led central government – seems to have been a mirage. Chinese markets are collapsing with breathtaking speed, wiping out a generation of newly minted small investors, even as the Chinese government attempts—thus far in vain—to put a lid on their overly margin-account-fueled stock markets.
The Chinese mess is at this point difficult to calculate, as real Chinese financial numbers all seem to be state secrets. But with Chinese consumption dropping radically and with evidence of Chinese commodity stockpiling increasingly strong, there’s now a palpable fear, realistic or not, that world business could shortly come to a complete halt.
Add to this Janet Yellen’s botched and confusing statements on the Fed’s interest rate intentions over the last few months, and you have a market that no longer believes anyone either in New York or Washington is actually running the store.
Add August options expiration day (today) to this already gamey fiscal stew, and you have investors large and small barreling for the exits on days like today, just like a huge mob of “Three Stooges” clones trying to get out a narrow theater door all at the same time.
Unlike Three Stooges comedies, however, today’s mass exit was hardly a laughing matter. Individual investors and accounts, including 401(k) accounts and IRA Rollovers were badly damaged today. There’s no assurance that this negative activity won’t continue next week, although we are due shortly for at least a one- or two-day oversold, “dead cat” bounce at least.
After that, who knows? Let’s try to enjoy the weekend, and forget about today’s big losses. At least for now.
*Mertilized. Most Boomers, the Maven included, remember this choice word as embodying one of Moe’s and Curly’s greatest threats: “I’ll murderize him!” Or, as many of us Midwesterners heard it, “moitilize.” Which we then regularized to “mertilize.” For those who remember the term, a pretty good synonym is “annihilate.”
For a longer footnoted explanation of the term, plus a cartoon character that also remembers “mertilize,” check out this 2014 Market Maven article.