Fear Factors: 5 Drivers of Today’s Stock Market Decline

Economic data from the past 24 hours — most of it bad — has investors hurdling toward the exits

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Richard Drew / AP

The New York Stock Exchange was down almost 500 points at the beginning of trading on Aug. 18, 2011

The Dow Jones industrial average was down 500 points in mid-morning trading, as investors once more had that “here we go again” feeling in the pit of their stomach. So what’s driving the stock market today?

Traders are already pointing to some larger, macroeconomic issues, like contagion from the ailing euro zone and fear of a “false” market rally — that is, concern that the recent mini-rallies have been mere pauses before even greater losses.

(MORE: When Analysts Refuse to Admit They’re Wrong)

But there were also specific issues weighing on investors’ minds this morning — all of them negative.

  1. The Philadelphia Fed survey of U.S. manufacturing activity came in at negative 30.7, a huge slide from the expected reading of 1.0 (from analysts surveyed by Briefing.com). Last month, the Philly Fed’s survey reading clocked in at 3.2. That’s a sign that one of the main U.S. economic engines is wheezing and hacking — and likely heading into a ditch.
  2. Realtor.org is out with its July existing home sales numbers, and they’re down again — with a caveat. Home sales declined from an estimated 4.87 million to 4.67 million for the month. That’s down from the 4.84 million in June, although year to year, July was up over 2010. A weak housing market is strongly linked to weaker consumer sentiment. And if consumers aren’t spending, businesses aren’t making money.
  3. Morgan Stanley says the U.S. and Europe are both “ hovering dangerously close to recession, defined as two consecutive quarters of contraction — over the next 6-12 months.” Economists and politicians had hoped to avoid the dreaded R word, but Morgan Stanley’s statement, released on Thursday morning, was the harshest reading of the economy yet this month. The  report only adds to market anxiety, and an accompanying report from Deutsche Bank that cut China’s GDP estimate only threw more gasoline on the fire.
  4. More Americans filed for unemployment benefits last week, according to the U.S. Labor Department. The data shows jobless claims rising by 9,000, to 408,000 for the week. That’s the highest figure in a month and a big red flag for the markets today. If U.S. companies resume layoffs, recession is the likely scenario — and traders know it. Fear of losing a job is one of the key drivers in consumer spending — and consumers account for about 70% of the U.S GDP.
  5. The U.S. Consumer Price Index rose 0.5% for July, with a 4.7% rise in gasoline prices hitting Americans in the pocketbook. Factor in higher prices on things like food and gasoline to high unemployment and a low housing-market picture and you just about have a perfect economic storm — and a recipe for an ailing stock market.

It’s not a pretty picture, on Wall Street or on Main Street. But at least we know why stocks are diving today.

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