All stock market investors needed Monday was an excuse to sell.
They found it at Wal-Mart.
Disappointing sales at the world’s biggest retailer helped send the Dow Jones industrial average on its steepest plunge since July.
“Profit-taking,” said Jeff Thredgold, economist for Vectra Bank Colorado. “They’re using Wal-Mart as an excuse.”
Before Monday, the Dow was up 15 percent for the year after setting 18 new highs since early October. The Nasdaq and S&P were each up 12 percent.
How long could it last?
In January, Thredgold accurately predicted that the Dow would eclipse 12,000 this year. But he’s not sure where the market is going now.
“The trick was getting to 12,000, and we moved north of 12,300,” Thredgold said. “From here, we’re probably moving somewhat sideways.”
The Dow’s recent run-up came despite several reasons why it should fall. Those reasons included a softening economy, slumping home sales, a weakening dollar, a quagmire in Iraq and nuclear saber-rattling in Iran and North Korea.
Corporate earnings and employment numbers, on the other hand, have remained strong. Most economists say the economy is heading for a soft landing, not a recession. And oil prices and interest rates – though higher than last year – have moderated.
“There’s been this tug of war going on between the bulls and the bears,” said Tom Coxhead of RBC Dain Rauscher Inc. in Denver. “Each side has extracted enough information from the statistics to bolster their case.”
Coxhead isn’t sure who will be tugging the hardest in the weeks ahead.
Neither is finance professor Michael Williams, who helps students oversee a $500,000 investment portfolio at the University of Denver’s Daniels College of Business. The portfolio took some big hits when the stock market collapsed in 2001, but it has more than recovered with the recent spike in the Dow.
“It’s been a lot more enjoyable over the last couple of months than it was over the past few years,” Williams said.
The Dow’s recent run-up, however, has DU students increasingly wary.
“People are concerned that maybe this is a time to liquidate the portfolio,” Williams said.
On Monday, the Dow fell more than 158 points, or 1.3 percent.
Broader indexes tumbled, too. The Standard & Poor’s 500 slipped 19.05 points, or 1.36 percent. The Nasdaq composite index dropped 54.34 points, or 2.21 percent. The Russell 2000 index of small company stocks fell 20.18 points, or 2.6 percent.
Some investors are concerned that the market will be soft in November and December simply because it was strong in September and October. This argument does not stand up to history, said Jeffrey Hirsch of the Stock Traders Almanac.
“A great September and October does not preclude a great November and December,” he said. “We actually had an old indicator called the September Reverse Barometer that we relegated to the indicator graveyard because it didn’t work.”
Hirsch, however, argues the Dow won’t move higher than 12,500.
“I don’t see how we get a whole more upside in this market,” he said. “It has been stretching itself for some time.”
The market faces what may prove to be a tough week of economic news. Existing home sales and durable goods reports are due out today. New home sales and revisions for the third-quarter gross domestic product are due out Wednesday.
Additionally, a weakening dollar means more foreign investors may pull out of stocks. Despite the gains in the U.S. stock market, they are running about break- even when you include the dollar’s decline, Coxhead said.
Also, the time is coming when consumer spending slows enough to stall the market, says U.S. Bank’s regional economist Tucker Hart Adams. More of their disposable income is now going toward higher energy costs, higher health-care costs and higher interest-rate payments. And perhaps less of it is going to Wal-Mart.
“Ultimately, it comes down to whether consumers are spending money,” Adams said. “I don’t think that’s going to continue like it has.”
Al Lewis’ column appears Sundays, Tuesdays and Fridays. Respond to Lewis at denverpostbloghouse.com/lewis, 303-954-1967 or alewis@denverpost.com.
