5 reasons the market is seeing red
5 reasons the market is seeing red

Geopolitical crises are taking a toll on stocks as we head into the seasonally weak month of August.

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Behavioral-finance experts counsel clients who are ready to throw in the towel.

By TheStreet Staff Aug 22, 2011 12:25PM

By Frank Byrt, TheStreetTheStreet

 

American investors, panicky after a steady drumbeat of bad economic news and steep declines in almost all types of investments except gold, are ready to call it quits.

 

They pulled $23.5 billion from U.S. stock funds in the week ending Aug. 10, more than in any entire month since October 2008, the time of the last market crash. And no wonder. The benchmark S&P 500 ($INX) has tumbled 17% from its April 29 peak, edging close to a bear market.

 

For this year, the S&P 500 is down 10%, while over the past five years, its average annual return is a loss of 0.52%. In other words, many investors have made no money for half a decade or longer.

 

Chairman Ben Bernanke is unlikely to come up with a miracle plan that will jolt the economy, so stick to dividend-paying investments and gold.

By Jim Cramer Aug 22, 2011 10:47AM

jim cramerthe street We love to fool ourselves in this market, don't we? Monday people were buying futures as they "awaited" statements from Federal Reserve Chairman Ben Bernanke from the central bankers conference in Jackson Hole, Wyo. They are hoping for good news that will ignite "growth" and promote stability. No one wants to miss the "miracle" that Bernanke might have up his sleeve.


That's just like last week, when people stopped selling and started buying because of the potential for good news coming from the pending Merkel-Sarkozy meeting. Traders didn't want to miss good news that would ignite "growth" and promote stability. No one wanted to bet against a potential for the "credit miracle" and the "sovereign solution."


There was no miracle.

 

Watch out for the next leg lower

By Jamie Dlugosch Aug 22, 2011 10:25AM

Enough is enough. The plunge in stocks returned last week with the S&P 500 dropped more than 4%. Bond yields sank and gold skyrocketed.

 

Something is truly amiss and I’m not talking about the standard bear fare of debt defaults or runs on banks in Europe. I’m talking about earnings.

 

The market sell-off that began in July is fast becoming a self-fulfilling prophecy. Consumers are rightly frightened with growth slowing, stocks losing value, home prices still crumbling and policy makers with little ammunition to change things.

 

The next step is for earnings to drop. At the moment Wall Street estimates are too high if indeed we slip into recession. The market is pricing in a recession, but the numbers many investors use to discount future cash flows has not.

 

In a market like this the cream will rise to the top. Other stocks are likely to fall as earnings performance falls short.

 

It may be late in coming, but I’m moving to a more conservative position with my ETF’s to buy this week by switching to the ProShares Short Russell 2000 (RWM).

 
Tags: etf

We won’t know for a while whether the bulls have been truly slaughtered, so investors would do wise to wait for the near-term rally that will likely follow Friday’s down close.

By MoneyShow.com Aug 19, 2011 5:52PM
By Tom Aspray, MoneyShow.com

Last week provided more thrills and chills for stock investors. The bulls got some relief early on: stocks rebounded to first resistance by mid-week, before Eurozone fears fueled another massive down day.

Somewhat bizarre comments from a Swedish finance official that the interbank funding market was fragile raised concerns that European and United Kingdom banks might be in trouble because of a lack of liquidity.

Most of these banks, like Lloyds Banking Group (LYG) and the Royal Bank of Scotland (RBS), have looked weak since since early in the year and are already down over 50% year to date.

The relative performance, or RS analysis, of two large Eurozone banks, Banco Santander (STD) and Deutsche Bank (DB), suggests that they can still go lower despite last week’s plunge. Therefore it is likely that additional concerns about these banks will surface over the next few months, adding fuel to future downdrafts.
 

Use earnings reports to capture gains long or short

By Jamie Dlugosch Aug 19, 2011 4:29PM

What I like about trading stocks of companies about to report earnings is separating fact from speculation. At the moment we are in the midst of a massive speculative selling phase that has the market close to bear market territory.

 

When a company reports results, for a brief moment in time the shock of real news distracts market participants from the worry of the day. In an efficient market a stock is priced based on the discounting of future cash flows. Doing so requires using up to the minute available information to best accurately determine what those future cash flows will be.

 

That is why obtaining tangible information even if that information is looking backward, earnings reports allow the market to reset the price on a stock releasing profit numbers. On many occasions the inefficiency of a market has gotten that price so out of whack that the resetting of the price moves the stock in a big way.

 

Some are selling stocks into any rally. I’m making money for my subscribers buying stocks of companies reporting earnings. Last week at a time when the market was down significantly, I made 4 consecutive winning trades that made big profits for my subscribers. One of those trades was on graphic chip maker, NVIDIA (NVDA).

 

The investment world loves to pit value investing vs. growth investing. Good investors know that both should play a role in your portfolio.

By John Reese Aug 19, 2011 4:24PM

Coke or Pepsi? Magic or Larry? The Beatles or the Stones? Life is full of such "either/or" questions. The investing world is no different, with perhaps the greatest being "growth, or value?" And, like most of those other debates, the growth or value question is misleading by its very nature, presupposing that you must embrace only one or the other -- not both.

 

For investors, such thinking can cost you a lot of money. That's because, as I've found after more than a decade of studying history's most successful investment strategies, the best approaches usually use a combination of value and growth criteria. As Warren Buffett has said, "growth is simply a component -- usually a plus, sometimes a minus -- in the value equation."

 

Of course, certain strategies will focus more on growth criteria, and others focus more on valuation criteria. But even so, there's no reason an investor should restrict themselves to one or the other. Look, for example, at James O'Shaughnessy, whose book What Works on Wall Street forms the basis for one of my best performing "Guru Strategies" (each of which is based on the approach of a different investing great). O'Shaughnessy back-tested a myriad of investment approaches, eventually landing on one growth-focused approach and one value-focused approach. Both strategies handily beat the broader market over time, but he found that he could build an even better portfolio (as judged by risk-adjusted returns) by using some stocks picked with the value model and some picked by the growth model.

 

 

It's a good time to buy.

By Motley Fool Pick of the Day Aug 19, 2011 2:18PM

By Dan Caplinger

 

Most of the news you've heard over the past couple of weeks has focused on how cataclysmic the big sell-off in stocks has been. But one group of investors should hope that the market keeps on dropping -- and be ready to swoop in to take advantage of the huge bargains that would result.

 

Steering clear of stocks? Not so much
Ever since the market meltdown in 2008 and early 2009, financial planners have had concerns about young investors staying away from stocks. The idea was that like those who grew up in the aftermath of the Crash of 1929 and the Great Depression, young investors who had only known the market's lost decade of the 2000s would conclude that stocks were a losing bet and avoid them in favor of other investments.

 

But recent research suggests that the impact on investors under age 40 hasn't been as big as once thought. On one hand, data from the Investment Company Institute shows that only 35% of those born between 1970 and 1979 own stocks, down from 55% 10 years ago.

 

A federal agency says the commission's practice of destroying records from closed investigations is wrong.

By Kim Peterson Aug 19, 2011 1:31PM
The Securities and Exchange Commission must be feeling mighty uncomfortable this week.

First there was a damning article in Rolling Stone detailing how the agency destroyed records of preliminary investigations once they were closed. The next day, the government's archives agency said that the SEC actions were improper and that the commission didn't have the authority to delete those files.

That has led to a grand debate over the SEC's actions. If the agency started an investigation and then decided there was nothing to it, what's wrong with destroying the file, some people ask.

But consider this: Those early investigations might have changed the course of history if something had come of them. 

Investors who avoid panic selling could get a better exit point in the weeks ahead.

By MoneyShow.com Aug 19, 2011 11:43AM
By Tom Aspray, MoneyShow.com

The Eurozone concerns hit the stock index futures very early Thursday, and by the time the regular session started in New York, the selling pressure was already high. The Philadelphia Fed survey hammered the markets even more.

Stocks did firm in late trading, but the selling carried over to the Asian session early Friday with the S&P futures down over 15 points an hour before the opening.

The short-term technical action shows no signs yet that the decline is over, and even though individuals are taking massive sums out of the equity markets, the sentiment is not yet that extreme. The last time investors took this much out of the market was in October 2008.

The most recent American Association of Individual Investors (AAII) sentiment survey as of August 18 shows that over 35% are still bullish. At the 2010 summer lows, the bullish percentage dropped below 21%, so investors can still get much more bearish. The sentiment on the institutional side seems more negative, as more are now looking for another recession.

Clearly, the interest rate spreads in Europe, despite the fears surrounding many banks, are not nearly as wide as they were in October 2008. Technically, the market also looks much better, especially the weekly analysis.
 

The goofy and sometimes creepy mascot is overthrown as part of the fast-food joint's rebranding efforts.

By InvestorPlace Aug 19, 2011 11:28AM
By Anthony John Agnello, InvestorPlace.com

investorplaceThe nation mourned Friday after Burger King executives broke into the guarded top floor of the fast-food chain's corporate headquarters in Miami, Fla., and took out the King in a shocking coup d’état. Releasing a statement Friday morning regarding the deposition of the long-standing monarchy, senior marketing vice president Alex Macedo said, "People want a reason to go back to Burger King."

The King wasn't killed, but the masked mascot was indeed shown the door. Burger King is kicking off a new marketing blitz that looks to rebrand the restaurant as a distributor of healthier, mom-friendly menu items.

The overthrow of the king is more symbolic than anything else. The real story of whether Burger King has changed will be told by its new menu,  including a centerpiece push that focuses on a California Whopper. 

If you're looking for a contrarian bet, these shares might become too cheap to resist.

By TheStreet Staff Aug 19, 2011 11:18AM

Image: Home under construction (© Corbis)By Chris Stuart, TheStreetTheStreet

 

No one is buying homes, never mind homebuilder stocks. Companies such as Pulte (PHM), DR Horton (DHI) and Lennar (LEN) may even be the most contrarian investment today.

 

The outlook for the housing market, as reported by the mass media, is not good. In case you've missed them, here are a few of the headlines from over the past several weeks:

 

 "No recovery in sight for US housing market"

 

"July real-estate market fell short of expectations"

 

"Housing data show sector is still weak"

 

The stock plummets more than 20% as the company also announces a major strategic overhaul.

By TheStreet Staff Aug 19, 2011 10:14AM
the street

By James Rogers, TheStreet

 

Hewlett-Packard (HPQ), desperate to boost its margins, unveiled a major corporate and strategic overhaul Thursday, which will involve ditching its WebOS devices and potentially spinning off its PC business.

 

HP turned on a firehouse of announcements, reporting its preliminary third-quarter results and confirming the purchase of U.K. tech company Autonomy, which makes data analytic software.

 

Investors responded negatively to the slew of announcements and HP's weaker outlook, sending shares tanking 21.2% to $23.25 Friday morning.

 

After intense speculation about a possible HP breakup, the company confirmed that it wants to get rid of its PC business.

 

Until stocks fall to the point where the anarchy in Washington is fully discounted, we just have to presume prices are too high.

By Jim Cramer Aug 19, 2011 9:11AM

jim cramerthe streetI was soul searching all day about whether the people in Washington, D.C., just have no idea what makes business tick or actually just don't care for business.


I say this because the disastrous NetApp (NTAP) call wasn't about low taxes -- what some people in Washington believe is the panacea -- it was about rancor and ugliness and the loss of confidence in our country.

 

I keep thinking back to a moment when I was on "Meet the Press" just a couple of weeks ago and said this brinkmanship could actually hurt orders, hurt business. I was hearing it anecdotally from execs.

 

It's no longer anecdotal. Now it is empirical.

 

Wasteful multibillion-dollar buyouts, no innovation, a lack of leadership and a bloated corporate structure plague this struggling tech giant.

By InvestorPlace Aug 19, 2011 8:00AM

By Jeff Reeves, Editor, InvestorPlace.com


investorplacejeff reeves msnThe market had quite an ugly day on Thursday. But for a brief moment, Hewlett-Packard (HPQ) swam upstream on news that it is working out a massive $10 billion buyout of software company Autonomy. Of course, the gains were fleeting and Hewlett-Packard stock finished the day down, along with nearly every other stock on Wall Street. Some investors were fooled for about an hour, and then the profits evaporated. In premarket trading Friday, it was down 13%.


Thursday's news is a fitting example of how HP is trying to manage its business these days. The 10-figure buyouts. The claims that it is rethinking its role in the tech sector. The blatant flaunting of its massive cash stockpile at a time when companies claim to be suffering from the economic downturn.


Hewlett-Packard is everything that's wrong with corporate America right now, exhibiting stupidity, a lack of innovation, bloated operations and no leadership.

 

Recent data are gloomy enough to remind the financial markets of the dark days of 2008. But there is a plus side.

By Jim J. Jubak Aug 18, 2011 4:28PM
Jim JubakJust in case you thought it might be safe to jump back in.

The Dow Jones Industrial Average ($INDU) and the Standard & Poor's 500 ($INX) have had a tough week.

The carnage has been even greater in Europe, which is only appropriate, since recent fears have focused on Europe's banks.

A forecast from Morgan Stanley (MS) on Thursday cut the company's projection for global growth to 3.9% in 2011, from a previous forecast of 4.2%. The forecast cited "recent policy errors, especially Europe's slow and insufficient response to the sovereign debt crisis."
 

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[BRIEFING.COM] The stock market punctuated July with a broad-based retreat that sent the S&P 500 lower by 2.0% with all ten sectors ending in the red. The benchmark index posted a monthly decline of 1.5%, while the Russell 2000 (-2.3%) underperformed to end the month lower by 6.1%.

To get a better feel for what led to today's retreat, we'd like to look back to Wednesday, when the market had ample reason to rally, but did not. Instead, it ended basically flat after a sloppy day of ... More


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