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Stock Prices Keep On Plunging

Stock Prices Keep On Plunging
Stock Prices Keep On Plunging GUESTS:Laurie Itkin, financial advisor, Coastwise Capital Group, La Jolla Seth Kaplowitz, business professor, San Diego State University

Is a China -- plummeting oil prices, jitters over the election? Whatever the reason the US stock market took a nosedive this morning falling at one point more than 500 points in this first month of 2016. Wall Street seems to be continuing its worst start the new year ever. Some analysts predict a bear market is round the corner. Others are more optimistic. Joining me is Lori it can a financial advisor with the -- welcome to the program. Happy to be here mooring. Also here is Seth Kaplowitz. The professor business at San Diego University. Welcome to the show. This stocks slide must be Sherritt best scaring some of your client silly. How would you describe what is happening? There are a lot of factors affecting it and why we are having such a worst week ever in the stock market. Really in terms of the broader picture, but I tell my clients is, let's look back to 2008. I don't think this will be as bad as 2008. But safe argument it is. It was very scary in 2008. If you kept your money in stocks -- you were heavily rewarded over the next 6 to 7 years. We had a bull market and had you taken money out -- out of fear -- it was very difficult. You can never know for the market. Dropping and when to come back in. I am of the optimistic camp he talked about. I do not believe we are heading into a bear market. I think this is a correction that was long overdue. This is the ups and downs of being an investor. Spirit gives if you would Lori and that causes you see for the slide in value. I think there are for primarily. Oil prices are plummeting at a very fast-paced. That is affecting a lot of stocks. You have to remember, a lot of the major energy stocks are being hurt. They make up -- your investor in a four -- if you own the S&P 500, that industry is represented. Even if you have a basket of stocks, you are going to be impacted by these energy stocks and also other companies are relating to oil. China. And is obviously they are having eggs slowing growth in their economy. That is creating fears. A lot of the large companies in our country do business overseas. A lot of sales are dependent on China's demand. We are seeing that going down. We also have the Fed raising interest rates for the first time in years. I think the people I talked to, many believe they will continue raising interest rates slowly if the economy in our country's shows resilience. Finally, we were long overdue for a stock market correction. This is the correction. I believe this is a correction. Is typically defined as more than a 10% drop. The major indexes are down 10 -- more than 10%. Small caps are down more than 20%. In a nutshell, tell us what is going on with the Chinese economy that is causing so many repercussions for the US stock. China is an interesting case. Because they could not sustain a 10% growth rate. When I lived in China, things were just crazy. It is adjusting now. Because of several factors. The Chinese are not producing the way they were. Their unemployment is going. The middle class that they were hoping to build up, can't go anywhere because there is nowhere to go. There is a huge amount of money that is exiting the country. Over $725 billion had exited the country very recently. That money, a lot is coming here the states. In real estate investments. It is making the Chinese stock market go nuts. It really reminds me of back in 2007 what we were going through. Here. They are going through a major correction. UNICEF, the extremely -- Seth. This is another thing people are pointing to the six dollars a barrel for oil. In what ways does that affect us negatively? If we have much oil and nobody wants to buy it, it impacts its that way. The US is a major exporter and producer of oil. If we are not getting any more than $26 per barrel, Ford will those investors go? On top of that, is impacting other businesses like oil recycling. They can buy the oil cheaper than it would cost them to recycle it. All my. Okay. Local companies are being most affected by this volatility on Wall Street? Some of our local companies that are publicly traded have had their corrections in their stock prices we before the beginning of this year. If we look at QUALCOMM for example -- many months ago they announced layoffs and they're having challenges. Just a year and a half ago, there stock traded as high as $80 per share. Now it is below $50 per share. We are talking about a 40% drop. Take [ name unknown ] a darling in the biotech space. We had a few months ago a correction and biotech stocks. It was sort of a bubble. Even some one like semper energy is seeing the prices go down. For my standpoint, I think the stocks in San Diego companies may even be affected more deeply than a broad market at large. Why is that? I don't know why it is. All I can think of is we concentrate on tech and biotech. As an investor, this is the time when you have fear in the market -- it is something that Coastwise Capital Group we talk about investing in greed. The company's many years who have paid dividends. You can do this yourself is just a regular investor at home, you can Google and find out which companies in the depth of recession in 2008, not only continue to pay a readily dividends but even increase their dividends. When you have tech and biotech that are more growth oriented -- QUALCOMM pays a dividend, find those companies have a higher volatility when the overall market is good, they go up. When it is down, they go down more. Now Seth, there are people that have 401(k)s and as we heard from Lori, she said don't worry about this we see the stocks go up and down just stay the course. From your perspective is a professor of business, is that the advice people should be getting? I agree with Laurie. I don't think people should overreact. I think they should reposition. To go with the time so to speak. I want to make a comment about QUALCOMM. In addition to things not being that great there, they just formed a joint venture in China to manufacture chips. So if they are still -- there are still companies that see China as a solid country. I agree. China will come back. I don't think it will ever come back to the growth rate of 10%. But I do believe this problem that is existing in China now will be rectified and not too long a period of time. I want to ask you Laurie call you mentioned dividends, there are people retired now and they are relying on these investments for their income. When the start Mark -- from the start market goes crazy, it is very scary. Best Buy of anybody who should be nervous, it's the retirees. The people who are still working and contributing either in a private sector or government job and continuing to every two weeks or month put into the retirement account to work, there dollar cast averaging -- they are putting in the same amount of money whether the stocks are up or down here. They will roll over time an average out. But for retirees, you really should be deciding what is your risk tolerance? The whole adage of some stocks and bonds and real estate rings true. You have to be diversified. Not distant stocks if you are nearing or in retirement. In market watches that a number to watch to determine if it's a bear market in which prices fall, is to see if the S&P 500 goes below 1867. There are a lot of gurus on Wall Street who say watch for this or that. Do you agree with that or any other bellwether? I don't agree with that in particular. Is or technical traders. When they say there's a certain support later and if that is violated watch out. I prefer to see is my hero someone like Warren Buffett. Hoodia said, if you stand a company he liked and wanted to invest in a month ago, now it is 10 or 20% cheaper, he likes it even more. Most Americans Seth, they don't invest in the start market. They don't have stocks. When the Wall Street starts to go up and down like this, Laurie says she is not really afraid of any kind of real impact on the US economy. Could we see some impact on the US economy. Is that what happened in 2008? You could see an impact. Unemployment figures are good. They are at 4.7. Doesn't take into account all of the people who fell off the job market. I think unemployment rate is closer to a percent. If things continue the way they are continuing -- on Wall Street you mean. I think there will be a problem. There are plenty of companies that are not on the Dow or NASDAQ that are doing well. I agree with Laurie again. If somebody wants to Google what companies survived 2008 and were still paying a dividend, I would say invest their -- there. I want to thank you both very much I has been speaking with 24 -- Laurie Itkin and trend -- six -- Thank you both very much.

Another plunge in the price of crude oil sent stocks sharply lower on Wednesday. Energy companies led the way lower with a drop of 4 percent. U.S. stocks reached their lowest level in more than a year, continuing the worst start of a year in history. The Dow Jones industrial average sank more than 400 points.

The price of crude oil sank another 5 percent, and investors worry that the global glut in crude will cause deep damage to oil and gas companies and lead to more bankruptcies and layoffs.

Overseas markets fared no better. Japan's Nikkei index entered a bear market, down 20 percent from its peak in June, and European benchmarks were down between 3 and 4 percent.


Gold and U.S. government bonds, traditional safe havens, rose in value as investors shifted money out of stocks.

KEEPING SCORE: The Dow Jones industrial average lost 430 points, or 2.7 percent, to 15,586 as of 11:08 a.m. Eastern time. The Standard & Poor's 500 index fell 55 points, or 2.9 percent, to 1,826. That is its lowest level since October 2014.

The Nasdaq composite index sank 141 points, or 3.1 percent, to 4,336. The Dow and S&P are down 10 percent so far in January; the Nasdaq is down 13 percent.

OIL DOWN AGAIN: Oil prices had already fallen to 12-year lows this week, and the price of U.S. crude has dropped more than 20 percent this year. On Wednesday benchmark U.S. crude gave up $1.43, or 5 percent, to $27.03 a barrel in New York. Brent crude, a benchmark for international oils, lost $1.02, or 3.5 percent, to $27.4 a barrel in London. Heating oil prices also sank.

ENERGY KEEPS FALLING: Energy stocks were pelted. Devon Energy lost $2.70, or 11.5 percent, to $20.78 and Murphy Oil fell $1.89, or 11.5 percent, to $14.49. Chevron sank $4.84, or 6 percent, to $76.70, the biggest loss in the Dow average.


BIG BLUES: Commercial tech giant IBM said its revenue fell for the 15th consecutive quarter. Sales fell about $170 million short of Wall Street forecasts. The stock shed $5.39, or 4.2 percent, to $122.72.

HOUSING SLUMP: Homebuilders fell after the Commerce Department said housing starts decreased in December. Still, residential construction ended 2015 at its healthiest level in eight years. Beazer Homes sank $1.13, or 13.2 percent, to $7.49 and KB Home fell 67 cents, or 6.8 percent, to $9.20.

IMF OUTLOOK: The International Monetary Fund cut its forecast for this year's global economic growth to 3.4 percent from its October outlook of 3.6 percent. The IMF downgraded the outlook for developing economies to 4.3 percent growth from 4.5 percent in October.

SPIRIT RISES: Spirit Airlines said its profit margins will be stronger than expected and costs for aircraft rent, maintenance and other items will be smaller. Its shares gained $1.28, or 3.4 percent, to $39.18. The plunge in energy prices has also helped airlines save money on jet fuel.

PUMPED UP: Nutritional supplement retailer GNC Holdings said its adjusted profit for 2015 will be at the high end of its previous estimates. Its stock rose $1.22, or 5.2 percent, to $24.78.

ZAFGEN SURGES: Drug developer Zafgen climbed after the company said its most advanced experimental drug succeeded in a late-stage clinical trial. The trial evaluated beloranib as a treatment for a rare genetic disorder that causes life-threatening obesity. Its stock jumped $4.42, or 78.6 percent, to $10.04.

BONDS: U.S. government bond prices rose as traders shifted money into lower-risk investments. The yield on the 10-year Treasury note dropped to 1.96 percent, its lowest level since last April, from 2.06 percent a day earlier. That yield, which is a benchmark for setting interest rates on home mortgages and other kinds of loans, has fallen sharply since the beginning of the year. At the end of 2015 it stood at 2.30 percent.

OVERSEAS: Japan's Nikkei fell 3.7 percent and is down more than 20 percent from its June peak. Hong Kong's Hang Seng retreated 3.8 percent. The Shanghai Composite Index lost 1 percent. In Europe, Germany's DAX tumbled 2.8 percent and France's CAC-40 shed 3.4 percent. Britain's FTSE 100 sank 3.1 percent.

CURRENCIES: The dollar fell to 116.38 yen from 117.44 yen late Tuesday. The euro fell to $1.0907 from $1.0923.