Dow Loses 12,000, Stocks Fall to Five-Week Low

Well, that was refreshing wasn’t it? To have stocks react to other tangible things besides oil prices, things like global unrest and, lo and behold, economic data! Now onto the ugliness of it all — stocks plunged Thursday to their lowest levels in more than five weeks as a glum session that started overseas spread to U.S. equities. Even worse, perhaps, is the two big, round index numbers that stocks fell below — 12,000 on the Dow and 1300 on the S&P 500, despite a valiant effort by traders to keep those levels. The Dow Jones Industrial Average ended down 228 points to 11,984, the Nasdaq fell 51 points to 2701  and the S&P 500 lost 25 points to 1295. The Dow’s 228-point drop was its biggest fall in five months. So, where to start with what happened — after all, investors have been trained in the past couple of weeks to look no further than oil prices to see if it was a good or bad day for stocks. And on Thursday, oil slid nearly 2% to get under $103 a barrel. Alas, the fix was already in from abroad as investors woke to an unfortunate trinity: China reported a surprising $7 billion trade deficit, Japan dropped its fourth-quarter GDP figure, and Moody’s downgraded Spain’s debt and issued a negative outlook. The upside: all seemed to be well in the Dutch Antilles. All major overseas markets moved lower in response to China’s surprise $7 billion trade deficit, Japan’s downwardly revised fourth quarter GDP figure, and Moody’s decision to downgrade Spain’s debt and issue a negative outlook. From that start greeting U.S. investors, it was asking a lot to have them bid higher for stocks. But then you had reports of protests in Saudi Arabia, and a report that weekly employment claims jumped higher. Behind the headlines, however, is the continuing dynamic mentioned in this space Wednesday: stocks are behaving like they’re on the other side of the momentum they showed on the way up, when the push was largely supplied by Nasdaq and small-cap stocks. The Nasdaq showed no particular underperformance on Thursday, but the Russell 2000 fell 2.6%, and has now dropped 3% in two days. On Wednesday, we mentioned Brigham Exploration (NASDAQ: BEXP ) a small-cap and Nasdaq name that was having the good fortune of winning attention from investors looking for small-cap plays as oil prices went through the roof. The stock is now down more than 12% in March. And let’s not forget that clearing away the floor for stocks has been the diminished short interest, which had previously helped provide a bid for stocks as they moved higher through the end of last year. With shorts having capitulated, bulls are increasingly going it alone in the market. With stocks (the S&P 500) now up only 3% in 2011, the road less traveled may soon enough be the one occupied by market optimists.
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