Consumption and Real Estate
What caused stocks to fall on July 26? Where did the ball start rolling?
Question : What caused stocks to fall on July 26? Where did the ball start rolling?
Was it a foreign investor or a rich person with deep pockets manipulating the markets in many different places at one time? Was it a major investment firm doing same? Or was there a company that was falling from poor subprime mortgages that led the fall? Is there a way to find out what led the spin? Can we simply follow volume numbers and see where that leads? Should the SEC investigate?
subprime mortgage leads
Best answer:
Answer by mikerigg86
A couple things were the main catalysts of the fall on the 26th. Fallout from the subprime mortgage fiasco was defintely one of them. Another was that a lot of the companies from the S&P 500 reported earnings this week, with many of them underperforming wall street’s expectations. Housing was another program, as new home sales fell like 4%.
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#2 written by scow_sailor1692 1 year ago
Definitely the housing numbers and the fear of a credit crunch. As you probably know it isn’t traditional market indicators like low interest rates that are driving stock prices higher but rather the worldwide expansion of the money supply.
The fact the market ignored fairly upbeat information the following day has me very concerned that the sentiment now has changed. I think the market needs to really capitulate for a buying opportunity.
The last time money was seriously pulled out of the system is when the Y2K scare ended up to be a nonevent and you know what happened to the market then.
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The housing sector problems have been around for awhile. The subprime problems have been around for awhile. The dollar has been falling vs. other currencies, including the yen, for awhile. The market has been talking about, but otherwise ignoring those very real issues for months and continuing to rise.
Here’s my theory on why and what has now changed. I think the private equity buyout boom and continuing availability of relatively easy credit (for businesses) is the reason the market continued to rise. Pretty much every Monday, and sometimes other days, there’d be a couple more companies with buyout offers. Sometimes large companies. People started to expect that and were thinking that all but the biggest companies could potentially be taken private at a premium. I think a certain amount of premium was added to the market because of this.
What happened a few days ago is some corporate deals (e.g. Chrysler) started to be altered or canceled due to unavailability of credit at favorable terms. Suddenly, people started seeing that corporate credit is tightening. Worries about a credit crunch started surfacing. That probably means the buyout boom is ending and future corporate profits could be hurt by the tightening credit.
With that rug pulled out from under us, the “M&A” premium in the market started to disappear. With the market no longer in an apparently never ending rise, people started paying more attention to the other problems that have been around for awhile but ignored. The rose-colored glasses are off and the market is starting to see things the way they really are.
As for the last question, the SEC does not need to investigate. Irrational exuberance and irrational pessimism have been a part of the market forever. It’s not an orchestrated scheme. It’s just human nature to go to emotional extremes and to focus so much on today and tomorrow that you don’t think much about the long term.
What happens now? I think we have a bit of a bounce soon, then drop more over the next few months…probably going too far in the negative direction. Then a recovery will begin and the market will continue fluctuating up and down, sometimes dramatically, with an overall upward slope of about 10-11% per year – like it’s done for decades. When the pessimism gets extreme, I’ll be buying for the next wave up.