Thursday, March 17, 2011

The Big Drop

American stocks had a horrible day yesterday, with the S&P 500 losing more than 2 percent of its value and erasing all of its gains for 2011. It's easy to connect that directly with the horrible news out of Japan, and many financial pundits are doing just that. "Fears over Japan's nuclear crisis sent major U.S. stock indexes into negative territory for the year," the Wall Street Journal reported.

But is that true? The biggest loser among the 30 stocks in the Dow Jones Industrial Average was IBM, which was downgraded by the influential Bernstein Research. That has little or nothing to do with Japan. And in the S&P 500 homebuilders index, 11 of the 12 listed stocks lost value after some pretty dismal news from the Commerce Department, showing that the number of new housing starts dropped in February more than they had in any month since 1984. That obviously has nothing to do with Japan.

The Japanese earthquake and nuclear crisis is clearly bad news for many stocks, but it's not the only thing happening in the world right now. Interestingly enough, while American stocks were tanking, Japan's Nikkei index was up 5.7 percent. But it had probably already absorbed the bad news: Japanese stocks were rebounding from their worst two-day drop since 1987.

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