This is The Wall Street Digest Hotline Update for Tuesday, February 27, 2007, at 6:00 p.m. EST.
Worries over China and future U.S. growth pushed stock prices sharply lower today. At the close, the Dow plunged 416 points, closing at 12,216, while the Nasdaq dropped almost 97 points, closing at 2,407. Oil closed up $0.07 at $61.46 per barrel, and gold closed down $2.60 at $687.20 an ounce.
China's Shanghai Index fell almost 9 percent yesterday and triggered a worldwide sell-off today. Our only direct exposure to China is the Claymore Bank of NY BRIC ETF, which should be sold tomorrow. BRIC stands for investments in Brazil, Russia, India and China.
Traders also worried about the subprime mortgage market, which at the moment, is less of a problem than a possible meltdown in China. The down volume today was a rare 10-to-1 event.
Today's big sell-off may have created a vacuum for buyers tomorrow. However, the absence of a clear bounce-back in the final hour of trading probably means another day or two of selling. On October 19, 1987, the Dow fell 508 points, or 22 percent. Today, the Dow fell 418 points, or 3.3 percent. Tomorrow's market action will give a better perspective of the future.
The U.S. stock market is still substantially undervalued. Stay close to our telephone/e-mail/website Hotline Updates. An unusual buying opportunity will unfold at the bottom of this correction, which could be days or weeks ahead.
The next Hotline Update will be on Friday, March 2, 2007, at 6:00 p.m. EST.