New month doesn’t slow stocks’ slide

Market watchers say decline is result of recalibration after last year’s record highs

The Associated PressFebruary 4, 2014 

For investors, February is starting off even rougher than January.

U.S. stocks tumbled on Monday, pushing the Dow Jones industrial average down more than 320 points after reports of sluggish U.S. growth added to investor worries about the global economy. It was the biggest one-day decline for the blue-chip index in more than seven months. And the drop followed the Dow’s worst January performance since 2009.

The market stumbled from the get-go, with U.S. stocks opening lower after declines in European and Japanese indexes. Then it quickly turned into a slide as a spate of discouraging economic data on everything from manufacturing to auto sales to construction spending poured in.

By late afternoon, the sell-off accelerated further, bringing the Dow down more than 7 percent for the year. The S&P 500 index was down more than 5 percent for 2013.

Some stock watchers took the market’s decline in stride. They considered it a necessary recalibration following its record highs at the end of last year.

“It’s a bit painful for investors to see the equities markets drop as they have, but this is healthy for this market,” said Chris Gaffney, a senior market strategist at EverBank. “We’ve been almost 21/2 years without a 10 percent correction.”

Signs of worry showed across the market. The VIX index, a measure of stock market volatility, rose to its highest level since December 2012. Investors turned to U.S. government bonds, pushing yields lower and extending their decline since the start of the year.

Staffing company Robert Half International declined the most among stocks in the S&P 500 index. CarMax and Pfizer were among the few stocks to eke out gains.

Cold U.S. weather was a common problem for the economy last month.

Investors were discouraged Monday by a private survey showing U.S. manufacturing barely expanded last month as frigid temperatures delayed shipments of raw materials and caused some factories to shut down.

Automakers also piled on the disappointing news, as an icy January slowed vehicle purchases.

Fresh signs of weakness in China also weighed on the minds of investors.

An official Chinese manufacturing survey showed factory output grew at a slower rate in January compared with December. The report released on the weekend followed an HSBC survey that showed an outright contraction in manufacturing.

Any signs of slowdown in China’s economy — the world’s second-largest — can spell bad news. China drives exports and is a key trading partner for developing countries like South Africa and Indonesia that supply Chinese factories with raw materials.

Investors have been looking for more pullbacks this year and possibly a correction, the technical term for when a stock market index like the S&P 500 falls 10 percent or more. Three months ago, analysts at Goldman Sachs said there was roughly a 60 percent chance a correction would happen this year.

Monday’s slide moved the market closer to that.

Bruce McCain, chief investment strategist at KeyBank, on Monday reassured investors.

“We are definitely in a correction phase,” he said. “The message is that longer term, what drives the market is earnings and economic growth. We’ve seen no indication that it’s falling apart. We have seen some reports that things are not as strong as some people had come to believe, and that’s the anxiety that’s driving down the markets.”

After Monday’s tumble, how bad will it get?

“In a normal year, you will typically have 3-to-5 percent,” he said. “There is a chance that we could see a 15-to-20 percent sell-off some time this year.”

For investors, he said, “toward the end of the year and next year, you will be better off in equities than you would be in bonds.”

Inside

Turmoil in emerging markets likely to stay contained. Business, A12

Staff writer C.R. Roberts contributed to this report.

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