Stocks Stumble Coming Out of the Gate

By Jennifer Yousfi
Managing Editor

Stocks were pummeled last week, as the U.S. stock market got off to its worst start memory. Pressured by major recessionary fears, each of the three major indices suffered losses in the first three days of trading in the New Year.

The blue-chip Dow Jones Industrial Average Index closed the week at 12,800.18, a drop of 3.50%, marking its worst start since 1904.  The tech-laden Nasdaq Composite Index lost 5.57% to close at 2,504.65, the worst start since the index's inception in 1971. And the broader Standard & Poor's 500 Index lost 3.86% to end the week at 1,411.63, the index's lowest level in the past five months.

"There's a lot of blood. It has not been pretty," Chief Investment Officer Joseph Keating, who managers $3 billion in assets at Alabama-based First American Asset Management, told Bloomberg. "How slow is the economy going to be and what does it mean for earnings? That for me is the big issue."

According to the "January Effect" theory, the first five trading days of the year determine trading patterns for the entire year. Since 1970, in 31 out of 37 years - or 84% of the time - the S&P 500 Index has enjoyed positive annual returns when the index increased during those early days. That means that investors will be under severe pressure to send stocks higher on Monday and Tuesday sincne the first three trading days resulted in deep, negative returns.

Friday's trading was particularly rough, with ten declining shares for every gainer across all 24 sectors of the S&P 500.  News of an increase in unemployment to 5% for December 2007, which was released on Friday, helped to batter prices that were already dropping after Wednesday's report of a manufacturing slowdown.

The Dow Jones Wilshire 5000 Composite Index fell 2.58% on Friday, closing at 14,210.85. Based on the decline of the broadest index of U.S. shares, the value of the market decreased by $471.3 billion in one day, Bloomberg reported.

The losses in the U.S. markets only underscore Money Morning's position that global investing is the appropriate course during these turbulent financial times.  On the same day (Friday) that U.S. shares took a tumble, the China-based Hang Seng Index posted a 2.35% gain, while Singapore's Straits Times Index also rose 1.20% on Friday.

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