Why the stock market took a dive Wednesday

The Dow fell 185 points as the autumn swoon continues. Partly, the slide was due to worries that President Obama and Congress can't cut a deal to fix the fiscal cliff. But other factors were at play.

By Charley Blaine Nov 14, 2012 6:09PM
Why, you ask, is the stock market slumping?

Good question on a day when the Dow Jones industrials ($INDU) suffered its third loss of more than 100 points in the last six sessions, and the Nasdaq Composite Index ($COMPX) has fallen more than 10% since mid-September, the popular definition of a correction.

The answer is more complicated than simply the fiscal cliff or Barack Obama's reelection, although the former was clearly at play today. President Obama insisted at a news conference he would not agree to extend Bush-era tax rates on the wealthy. Republicans says they won't agree to boosting top tax rates, and the question is which side will blink first.
The result today was that the Dow fell 185 points to 12,571. The Standard & Poor's 500 Index ($INX) dropped 19 points to 1,355, and the Nasdaq was down 37 points to 2,847.

The Dow and S&P 500 have fallen 7.5% since their 2012 peaks on Sept. 20 and Sept. 14, respectively. The Nasdaq is down 10.6% from its Sept. 14 peak. The Nasdaq-100 Index ($NDX), down 30 points to 2,532 today, has fallen 11.6% since peaking on Sept. 19. Yes, that means the Nasdaq-100 is in correction, too.

Here are five more reasons that fill out the picture.

Apple's fall from grace is affecting everything. Apple (AAPL) is down 23% from its closing high on Sept. 23. It represents 4.2% of the S&P 500 and 17% of the Nasdaq-100. If it sneezes, a lot of others get hit. Cirrus Logic (CRUS), an important Apple supplier, is down nearly 32% since peaking in September. Nvidia (NVDA), whose chips help power in the iPad and Macintosh computers as well, is off 16%. Broadcom (BRCM) is down nearly 17%. Image: Arrow Down © Kyu Oh/Photodisc/Getty Images

In fairness to Apple, the stock was grossly overbought in September and more than ready for a sell-off. So were Amazon.com (AMZN) and Google (GOOG) for the matter. In fact, Amazon is down 14.7% since Sept. 14; Google is off 8%.

Hurricane Sandy is upsetting expectations. Retail sales fell 0.3% in October, the Commerce Department said today. Analysts believe that Sandy looks to be a big reason for the decline, if only because around 20% of all U.S. retail sales are generated in the middle-Atlantic states. Revisions may change the estimate, but the decline was a decline, and investors were dismayed. One other factor in retail sales: Gasoline prices fell 7% during the month. Investors may be cheered by November sales, which will reflect some of the spending required to repair everything Sandy damaged.

Geopolitical concerns erupted again. Israeli forces launched aerial assaults on Gaza today. Some 20 targets were hit, and the top military commander of Hamas was killed. Israel insisted the strikes were in response to recent rocket attacks. The strikes drew condemnation from Egypt and escalated the risks of a new war in the Middle East. Crude oil (-CL) in New York jumped to as high as $86.65 before falling back to $86.32. Brent crude hit $109.30 a barrel but pulled back below $108.65, a gain of $1.31. Gold (-GC) was up $5.30 to $1,730.10 an ounce.

Europe is a mess. We know the wrangling over how to straighten out the euro debt crisis is far from over. And investor frustration looks to be building. Germany's benchmark Xetra Dax Index ($DE:DAX) is down 2.2% this month and 4.2% since mid-September. France's CAC-40 Index ($FR:PX1) is off more than 5% since mid-September. We don't know if Greece's government will run out of cash at the end of the month. It's a possibility.

European worries have pushed the dollar higher against the euro. A rising dollar makes U.S. exports more expensive to non-U.S. customers. The U.S. Dollar Index is up 1.3% this quarter and 0.7% this year. The index measures the greenback against a basket of currencies, with the euro the biggest factor. The index was flat today, but nearly half of the Dow's loss today came from five stocks: IBM (IBM), Caterpillar (CAT), Boeing (BA), Chevron (CVX) and Home Depot (HD). The first four have huge businesses outside the United States.

How will this downturn end?

Let us assume -- as most people do -- that no one wants the country to go over the fiscal cliff -- the imposition of federal spending cuts and increases in income tax rates. So, a rally should erupt when it appears a deal is at hand. The market overall is primed for a rally. The major averages and the Nasdaq-100 are all oversold by many measures.

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44Comments
Nov 14, 2012 6:26PM
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I don't think the administration nor congress are concerned to the point of action.  President Obama has never exhibited a sense of urgency or outright concern regarding the economy.  It appears his primary driving force is to cement a win against his rival republicans without regarding the fallout.  The democrats are erroneously assuming they have a public mandate.  Let me make it simple!  THERE ARE NO MANDATES!  WE, THE AMERICAN PUBLIC WANT YOU TO GET OFF  YOUR RESPECTIVE REARS AND FOR ONCE DO YOUR DAMN JOBS!
Nov 14, 2012 10:45PM
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Obama thinks the solution to the budget problems is to raise taxes.  I guess he never learned that you have to control your spending first!!!!!!  Watch the show White House Revealed!!!!  The amount of money we spend to feed this guy and all the servants and luxeries that this guy gets.  And he could cut all the travel that he does with Air Force One! I know he has to do a job, but have you ever heard of video conferening?  Budget cuts start with the President but it seems like he feels he should be exempt as well as all the other boneheads in the federal government!  What percentage of the budget is federal government expenses?:  I'll bet it's quite high!!!  Obama should set an example instead of being an A-hole like he's been the past 4 years.
Nov 14, 2012 10:16PM
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Among many proposals in Obamas tax/fiscal plan, all cotaining perks for his supporters, are canceling deductions for home mortgages, takers dont own homes, doing away with charitable contributions, takers dont make charitable contributions, forgiving student debt, not many are working. I could make this into a book.

His rich celebrity supporters dont have enough sense to realize the impact on their incomes and loss of incentives to make movies in the U. S.

Each day the tally increases of companies planning layoffs, closing plants, reducing weekly work hours to keep from complying with health care mandates, forming new divisions with under 50 employees rather than expanding existing corporate structures, moving capital overseas for new production facilities,  developing long range plans that favor the largest markets in the world, China-1.3 billion population-India 1.2 billion population followed closely by Russia and Brazil.

The reality that most americans havent come around to is that Obama doesnt care as long as the government expands to a point of control of resources that it cant be reversed. Unemployment rates among his key support groups, minorities, youth, women, etc.. in the end didnt matter in the election because they perceived he will GIVE them something.

 

If anyone thought he would moderate in his second term, the last few days should put all that to rest as delusion. In the end, the makers have the ultimate power-they have the money and are already moving it to where it is treated best. Our own country was founded by people seeking kinder terms for their love of freedom and expectation of reward for individual effort and freedom of choice. This is a divine endowment and while it may be suppressed in the short term, ultimately this yearning will flow where it can be actualized.

For those who differ with my perspective, please identify ONE single member of his cabinet that has a background including self reliance or having built an enterprise outside of predatory favors from public service or some exemption for being a minority.

Smart is not the same thing as wise. Hitler and Stalin were smart, Lucky Luciano and  John Gotti were smart. Lincoln, Roosevelt, Einstein, Churchill-WISDOM.

Nov 14, 2012 7:08PM
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Stocks slide on Fiscal cliff and Apple's fall from grace ! "BULL" "S"  !  Stocks fell because the stock market is rigged against the small investor ! Stocks fell because the American consumer has no faith in its politicians, Banks and government ! Get ready for the worst Holiday season since the GREAT DEPRESSION !  AMERICANS ARE TIRED OF BEING SCREWED !
Nov 14, 2012 9:53PM
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Like it or not we will throw more money at the problem and be derated again. The Stock market hasn't produced a trustworthy product for many reasons. I get tired of hearing it is because of Europe because they buy the most of our goods. Here's a trick why don't we stop buying China's. Spread it around a little bit. I don't really need that much, especially from a communist country.
Nov 14, 2012 9:41PM
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I think that the sooner the Republicans give the President "everything" he wants/demands, the better.  "you want this?"  "you got it"......"you want that?"   "you got it".....

 

Then all of us should take a good look in the mirror and hopefully, a lot of us own property in another country.

Nov 15, 2012 2:25AM
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I have been betting against a recovery ever since Obama got elected. Although I voted for Romney, my portfolio has surged since the election. At least I didn't have to re-engineer everything.

The stupid Obama handout crowd will never understand that they will always be at the bottom of society no matter who wins or promises them anything.

Nov 14, 2012 10:46PM
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Another thing, anyone that pretends to know why the stock market dives or flourishes, and if you believe it, you and they need a doctor. If they do know, they will be instant millionaires. The ONLY reason people invest in the market is a positive expectation about the future. Its called confidence.Aside from the flash/instant trading initiated by computers, the market is a casino. You and I as individual investors dont stand a chane against a scientific computer with alogrithmic equations.

For the simple minded like me, I am not willing to risk any amount knowing people like Madoff, John Corzine, Stanford, etc are stewarding my money. especially given the ineptness of the regulatory agencies watching out for us.Are you kidding me? The simplest observation by Markopolis,the whistleblower on Madoff went unnoticed by the regulators for YEARS, DECADES. It was-THE MARKET GOES UP, THE MARKET GOES DOWN, IT DOES NEITHER INDEFINETLY

ENOUGH SAID.

BUY LAND-DIFFCULT TO STEAL AND NO MORE BEING MADE.

Nov 15, 2012 12:11AM
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Landman1, you do prove a point I've known for over 40 years; Liberals give themsleves too much credit for their intelligence. Just a week after the election and we are back to blaming Bush. Let us not forget what led up to the Bush era, the much inflated .coms during the Clinton years. And lets not forget a little thing called 911, or the housing and lending debacle (led by the Democrats).

   Different subject; am I the only one that heard the President in the debates when he proudly said oil imports are at an all-time low? Need to look at increasing oil imports to ease price at the pump. Need to have a correct balance so as to not hinder the production of our own resources. Also, a new refinery would be nice; near where I live, a proposal to build a new refinery near Mobile AZ, was shot down. Would have been the 1st new refinery in over 25 years. Would be amazing what an extra $100 a month in the pockets of workers could do if circulated in the economy on something other than gas.

Nov 15, 2012 12:54AM
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No surprise.

After the election the true progressive cesspool is revealed in this administration.

I VOTED FOR OBAMA --- as I said before --- to cook them and all their supporters for the next 4 years.  MAN --- we are off to a flying start.

By the time the heat is turned off, Obama is going to look like Don King coming out of a Maoist re-education camp.

Nov 15, 2012 1:03AM
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Can we ever again doubt that the real Sanduskys are to found among the progressives?

TO WIT:   The former Director General of the BBC [Boys Being Cocked - aka:  Pedophilia Central], Mark Thompson, is now going to be CEO of the New York Times.

Like I said --- let's keep rolling baby --- the dam of lies is bursting and we are going to crush these guys.

IT'S "ALL IN" BABY !

Nov 15, 2012 12:44PM
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We all concentraited on THE presidential race  " WE FORGOT ABOUT THE CONGRESS  ONCE AGAIN THEY SWITCHED OUR ATTENTION ELSE WHERE AN WE SCREWED UP AN REHIGHERED THE SAME ONES WHO BROUGHT US TO THIS FISCAL CLIFF , SHAME ON US ". NOW WE PAY THE PRICE!!!!!!!
Nov 15, 2012 12:25PM
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Flush with cash---waiting on the crash!
Nov 14, 2012 11:17PM
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In a system where choice is the prevailing component, there will be inequities that result from the dynamics of choice and freedom.Victims are rare, volunteers

  will abound..  

Nov 14, 2012 10:40PM
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Hehe I'll be nice to you Charlie.  The market has done what it has done because thats what people wanted it to do.  It is a market!  It is the attitudes of a gazillion contributors.  Any nonsense of looking back and trying to quantify what happened is a complete waste of mental time. Now if you could retrain yourself to not look in the rear view mirror for yesterdays weather report but towards what tomorrow might bring you would be a whole lot more interesting to read. But that would be a tad more difficult now wouldn't it?   Besidies Charlie if you did know what would it matter?
Nov 15, 2012 7:47AM
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The only reason the markets took a dive is because Wall Street has worked hard for two week to drive down stock prices and any news event that would help them Wall Street wanted. They are and have been in manipulation mode and nothing is going to change that. Yesterday took this years gain away for 2012 so they should be finally happy. There was nothing bad happening yesterday that would have moved the market over 10 points. Its funny because CD"s again beat Wall Street!!!!!! 
Nov 15, 2012 3:10PM
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Do not be fooled please...All we had at about 1340 hrs was another sucker's rally; they will restart the selling anytime now....Be careful.....More later
Nov 15, 2012 12:51PM
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And the beat goes on down here....Obama's reelection selloff lasting longer than we thought; that combined with more bad economic news and manipulators doing their thing calls for another down day and falling fast, over 63 down and counting...Oh well, stay cautious out there, things do not seem that are going to change anytime soon although anything and everything is possible...Lets see if this afternoon anything can be done...Not pretty down here now, it hasn't been since inept got reelected.
Nov 15, 2012 12:44PM
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This crisis is so contrived. First, it's not a Fiscal Cliff, it's a Fiscal Slope. The tax rates will go up but the effect will take place paycheck by paycheck. It will be interesting to watch Boner, Cantor and Ryan after the first paychecks hit their constituents and the emails start flowing. The spending cuts will likewise be slowing implemented and they too can be repealed once the Republicans start to feel the heat. Don't be manipulated by Wall Street alarmists that love these false crisis so they can trade on your fear. Secondly, we need to raise taxes and cut spending so this is exactly what the doctor ordered but the Republicans were arrogant in thinking last summer that they could set Obama up for failure. Lastly, someone needs to tell John McCain that he's a bitter, senile old man that needs to retire and stop trying to get us in more wars.
Nov 15, 2012 12:42AM
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Bush tax cuts favor only the Republican elite? The people that believe that need to have their head examined. I did an experiment several months back and did my 2011 taxes using my 1040A from 1999 when I was in the service (I was an senior enlisted; another words, dirt poor). You know what? I would have paid  $189 less in 2011. That doesn't seem like a lot of money; but believe me, considering the amount I was paid in the service, that is a lot of money. So don't tell me that it is only the rich (and by the way, it's not just the rich, elite, Republicans) that benefit from the tax cuts. Also; when they realize raising taxes on those making >250K a year doesn't work, what will the next recommended step be? What could be pointed out (I don't believe I have to point this out to all the intelligent libs out there) is that taxes are progressive. A couple that makes 300 K will pay the same rate up to 250K, and a higher rate on the next 50K. Perhaps what is needed in the discussion on the Hill is what will that rate be once it goes past that 250K mark and how progressive will that rate be as the income level rises. If it comes down to it, the progressive rate could be a point of compromise. I still don't think raising taxes is the answer; and as I suggested earlier, who's next to see a tax hike.
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