Stocks continued their plunge into the depths yesterday, with the popular Nasdaq composite index falling to its lowest level in six months.
Even long-term investors are beginning to feel the pain of this bear market, as many stocks are trading 50 or 60 percent lower than their recent highs.
The tech-packed Nasdaq nosedived yesterday, plunging 199.66, or 5.93 percent, to 3,164.55.
The Nasdaq’s downturn is pulling down other market averages, including the Dow Jones industrial average, which fell 120.28, or 1.14 percent, to 10,422.27 yesterday. The S&P 500 index dropped 26.86, or 1.92 percent, to 1,373.86.
“This is not the bottom,” said Ken Schapiro, president of Condor Capital. “Ironically, we won’t see a market rally until we start to see some bad economic numbers come out because it would show that the series of Fed rate hikes is finally slowing the economy out of hyper-growth.”
Schapiro said the Federal Reserve will almost certainly hike rates at least one more time, perhaps as soon as the June meeting, and that stocks will remain in a trading range that keeps the Nasdaq between 2,500 and 3,500.
He does believe, however, that the market will eventually pick up steam and begin rallying again, though many of the previously high-flying Internet companies will probably be left behind.
“Markets like this separate the men from the boys,” said Dan Strachman, author of “Getting Started in Hedge Funds.” “As an investor you have to have conviction in the companies you own. Markets have their short-term ups and downs, but good companies always show long-term price improvement. Stick to the high-quality, profitable companies, and you’ll be fine in the long term.”
Stocks are subject to more volatility these days, experts said, because volume is so light. Many investors are simply sitting out these volatile times, and with lower volume comes greater market swings.
The lack of participation in the market is expected to get even worse after this weekend.
“Money managers are heading out to the Hamptons for the summer, and the babysitters that they leave behind are instructed not do do anything but just to sit on their positions,” said Peter Cohan. “I don’t expect a rally until after Labor Day when these managers come back from their summer vacations.”
Just yesterday, only 887 million shares were traded on the New York Stock Exchange, about 16 percent below the three-month daily average.
The most actively-traded stocks included Cisco Systems, down $4.70 to $50.55; Oracle, down $5.18 to $62.63; Home Depot, down $1.38 to $49, and Microsoft, down $1 to $63.19.
“Cisco and Home Depot are right where they were six months ago,” said Richard Schmidt, editor of Stellar Stock Report, a popular investment newsletter. “If you got in two years ago or one year ago, you’re still ahead of the game, but if you got in just six months ago, you’re flat. But true long-term investors should stay the course. I think stocks will go lower in the short-term, but I think they will be higher by this time next year.”