The Market is Turning Nasty Yet Again

Just like the market, isnt it? The market decided to take the low road, as I
cautioned it might on Thursday . After a mixed outing Wednesday, the Dow
plummeted 420 points yesterday to finish again below 11,000. As usual on a bad
market day, there were some aggravating factors: rumors of liquidity problems at
a large European bank; a weak report on July existing-home sales; and, most
troubling, a steep drop in the August Philadelphia Fed survey of manufacturing
in the Middle Atlantic states. The Philly Fed number, as one of the timeliest
economic releases each month, often gives an early peek at manufacturing trends
nationwide. At -30.7, the Philly is pointing well below the line (zero) that
marks the divide between expansion and contraction. So it seems were in for an
extended period of base building before the stock market fully reflects the
increased risks in the economic outlook. I still think the United States will
avoid an officially defined recession, for the next few quarters, anyway. But it
may take until late September or sometime in October for Wall Street to work
through the worst of its fears. Along the way, the headline indexes will likely
break through their Aug. 8 closing lows, at least for a couple of sessions. The
S&P 500 was only about 2% above that level yesterday. How should you handle it?
Hedging is expensive at the moment, so I wouldnt try put options or inverse ETFs
until the market gives us more of a relief rally than weve gotten so far.
Instead, I recommend putting your spare cash to work slowly and steadily,
picking up individual stocks (quality names, of course) as they hit air pockets.
Spare cash? Yes, you should have a little, if youve sold some of your long bonds
lately, as Ive recommended. And if, like me, youve got a constant flow of
dividends and interest rolling in, youll have a few extra nickels to invest. One
air pocket that opened yesterday caught Accenture (NYSE: ACN ) in the downdraft.
No specific news that I could trace, but an analyst at Credit Suisse made
bearish comments