4 Reasons Stocks are Plunging Again

"Fasten your seat-belts, everybody. It's going to be a bumpy night!"
-Margo Channing (Bette Davis) in "All About Eve" (1950)

I know--you wanted the stock market roller coaster ride to end, but today's not the day. Stocks are sliding once again and the culprits are the same ones that have dominated the news for the past few weeks: slowing global growth and debt contagion in Europe.

Here's the final box score:

DJIA 10.990: -419 points or 3.7 percent
S&P 500 1140: -53 points or 4.4 percent
NASDAQ 2380: -131 points or 5.2 percent
US 10-Year Bond: 2.08 percent
September Crude Oil $82.38: -$5.20, or 5.6 percent
December Gold $1822: +29.10 or 1.7 percent

Today, there were four new pieces of evidence that fueled the selling:

The Philadelphia Fed said factory activity in the Mid-Atlantic region (including eastern Pennsylvania, southern New Jersey and Delaware) dropped to -30.7 in August from +3.2 in July. The reading is at the lowest level since March 2009, (coincidentally, the very same month that US stocks hit their recession lows) and follows the Empire State manufacturing index's third consecutive drop.
The National Association of Realtors said sales of Existing Homes dropped 3.5 percent to a seasonally adjusted annual rate of 4.67 million in July from 4.84 million in June. Investors were not soothed by the 21 percent jump from a year ago, because that was the month after the expiration of the home buyer tax credit, which means that the year-over-year comparison is somewhat distorted.
The Department of Labor reported that weekly claims increased by 9,000 to 408,000. Investors seemed to ignore the 4-week moving average, which came in at 402,500, the lowest level since early April. Yes, the 4-week average is still elevated, but it has been moving down since mid-May.
Morgan Stanley cut its forecast for global economic growth to 3.9 percent this year from 4.2 percent, and to 3.8 percent in 2012 from 4.5 percent. The report also said the US and the Eurozone economies are "dangerously close to a recession" over the next 6 to 12 months. It said "policy errors" in both the United States and Europe had led to the global downgrade.

In other words, the markets are struggling to overcome two big issues: (1) a slowdown in global growth (US GDP was 0.8 percent in H1 2011, Eurozone growth slowed to a 0.2 percent crawl in Q2, the slowest pace since 2009) and (2) worries that the European Union can't halt the spread of its debt contagion to Italy and Spain (investors finally figured out that when Mommy and Daddy (Germany's Angela Merkel and France's Nicolas Sarkozy) met this week, they came up with nothing new to address Europe's sovereign debt problems.

There is some good news in this mess:

As panic ensues, investors are pouring money into the treasury market, driving down yields to historic lows. That means mortgage rates are sinking, so get busy on the re-fi, Mr. and Mrs. Procrastinator!
If you are a retirement plan participant, you are buying shares at lower levels--automatic investing is forcing you to buy low.
As always, a well-diversified, balanced portfolio will help shield you from the extreme volatility.

More on MoneyWatch:

Photo by Flickr User jlantzy, CC 2.0

Jill Schlesinger

Jill Schlesinger, CFP® is the Emmy-nominated Business Analyst for CBS News. She covers the economy, markets, investing and anything else with a dollar sign on TV, radio (including her nationally syndicated radio show), the web and her blog, "Jill on Money." Prior to her second career at CBS, Jill spent 14 years as the co-owner and Chief Investment Officer for an independent investment advisory firm. She began her career as a self-employed options trader on the Commodities Exchange of New York, following her graduation from Brown University.

Twitter

More from CBS News