The Entire Market Plunged: What You Need to Know

Every day that the market is open, we Fools are diligently keeping an eye on the big moves happening in the stock market and giving readers the inside scoop on what's driving those price swings.

Normally, my fellow Fools and I are explaining how a great earnings report sends shares soaring or lackluster guidance from management caused investors to run for the hills. But what happens when a big macro event takes place, causing massive selling throughout the market and causing jittery investors to sell almost indiscriminately? Well, you have what we saw today.

After the market closed on Friday, debt-ratings company Standard & Poor's dropped the United States' credit rating from a perfect AAA to AA+. Following a brutal week of selling last week that left many investors fearful and shell-shocked, this set us up for an absolutely crazy trading session today, with market indexes falling drastically and steadily throughout the day and market volatility skyrocketing.

Overall, a jaw-dropping 94% of the NYSE stocks -- or 3,958 of 4,226 -- were down today, while a similar percentage of Nasdaq stocks were wallowing in the red.  Every single stock in the S&P 500 decreased in value today as well.

Stocks getting served
For some stocks, there was some legitimate news out today that provided additional fuel for investors to jam on the sell button like an insane version of Whac-A-Mole. OfficeMax, for instance, was downgraded by Goldman Sachs to "neutral" from "buy." Meanwhile, China Yuchai (NYSE: CYD  ) released earnings that were short of expectations.

But many, many, many, many more stocks were simply plummeting on concern over the ratings downgrade, the U.S. economy, and a gargantuan helping of fear. It's hard to be a winner when the broad markets are down more than 6%, but some industries fared worse than most.

Financials: served!
Investors weren't too confident about U.S. banks to begin with, but with bold, dire proclamations about the economic outlook proliferating and the value of U.S. debt being called into question, banks and the broader financial sector took an absolute pounding today. Citigroup (NYSE: C  ) lost as much as 22%, JPMorgan Chase (NYSE: JPM  ) shed more than 10% at one point, E*TRADE's (Nasdaq: ETFC  ) loss peaked at 17%, and Regions Financial (NYSE: RF  ) dropped as much as 17%.

Industrials: served!
If the economy hits the skids and plunges back into a recession, that would be very bad news for industrial companies that are highly tied to the strength and direction of the economy. Investors were obviously freaking about this potential today as Manitowoc, Terex, Chicago Bridge & Iron, and USG all saw declines of 10% or more.

Energy: served!
As long as we're worrying specifically about the economy, let's not forget that a global economy that's not growing is one that's not demanding more energy and pushing up prices for oil, natural gas, and coal. Fearing that energy prices will continue to fall and take a bite out of companies' profits in the sector, investors clobbered a broad array of energy stocks today, including SandRidge Energy (NYSE: SD  ) , Tesoro, W&T Offshore, and Transocean (NYSE: RIG  ) .

Is that blood in the streets?
Those industries had some of the most severe bloodletting, but they were far from alone. Economic concerns spare no one, so investors weren't shy about hitting the sell button on stocks in every other market sector as well.

In other words, there was no hiding out from the chaos today. By the time the smoke cleared, the S&P 500 had lost 6.7%. Since July 22, the index has shed a whopping 17%.

With those numbers in mind, I think investors need to ask themselves whether in the course of just over two weeks the outlook has really changed that drastically. Sure, the U.S. now has an AA+ rating from S&P rather than AAA, but that rating was already under negative review. Certainly there are real concerns about the state of the United States' financials, but those numbers haven't undergone any catastrophic change in the past couple of weeks. And although the economy hasn't looked stellar lately, we had some nice upside surprises last week, including better-than-expected employment numbers.

This isn't a repeat of 2008. We're still picking through the rubble of the financial crisis, but we're definitely not sitting atop that wacko bubble. Equity valuations are much lower than they were. And, maybe most importantly, fear and uncertainty, rather than greed and confidence, have been dominating most investors' psyches.

Panic is contagious, so take some deep breaths, turn off the TV, and hide the ticker feed. Today's plunge may not be the end of this sell-off, but I'm willing to bet that when we look back in retrospect, it will look like a better time to have been a long-term buyer than a panic seller.

In the meantime, if you're looking to beef up your watchlist to take advantage of the market's sell-off, you can check out these 13 high-yielding stocks that my fellow Fools think are great buying opportunities.

The Motley Fool owns shares of JPMorgan Chase and Transocean. Motley Fool newsletter services have recommended buying shares of USG. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Matt Koppenheffer has no financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter, where he goes by @KoppTheFool, or on Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.


Read/Post Comments (21) | Recommend This Article (32)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 08, 2011, at 6:08 PM, no12call wrote:

    Gosh, I was wondering why my ETF Shorts were killing it today. Guess no one saw this coming? lol I mean really the only worse economic news over the last 3 days could be that we decided to attack Canada and the EU at the same time. It would appear that the US is truly headed towards a collapse. As I sit here the overnight Shorts are KILLING IT. I guess the rest of the world doesn't believe Helicopter Ben.

  • Report this Comment On August 08, 2011, at 6:08 PM, KarolKarol wrote:

    That may be true, truth, but I still don't like to see 2/3 of my gains since market bottom 2008 wiped out in a single day! Rest assured, I'll be looking for bargains in the coming days, weeks, and months!

  • Report this Comment On August 08, 2011, at 6:12 PM, Borbality wrote:

    lol i was looking/hoping for "Everything Plunged: What You Need To Know" after seeing so many of the other stories about individual stocks.

  • Report this Comment On August 08, 2011, at 6:14 PM, TLassen wrote:

    Matt

    Maybe you can help me understand why the 'money' is going to US treasuries and bonds following a downgrade of the US credit rating?

    I can understand lagre funds selling equities to raise cash, but I fail to understand why they park it in treasuries at this point.

  • Report this Comment On August 08, 2011, at 6:34 PM, arizonamike303 wrote:

    I can't help but wonder why you didn't warn your readers. You're supposed to be the big brains and all, didn't you see this coming?

  • Report this Comment On August 08, 2011, at 6:48 PM, gcmagone wrote:

    This market crash will help indicate whether it is best to buy dividend paying stock or growth stock. As a retiree, I am going to keep my dividend stocks and let the growth stocks chase the wild wind.

  • Report this Comment On August 08, 2011, at 6:50 PM, moneyman35 wrote:

    @arizonamike303 I imagine the following of this site is pretty huge and the fool portfolios probably don't do too well if they tell all of us to sell. Then those graphics on the front page showing us how much they have beat the market by would all be red...

    Maybe the pay subscribers got the sell advice???

  • Report this Comment On August 08, 2011, at 6:52 PM, spicon1 wrote:

    And we've had problems like this in the past I'm sure and the market ALWAYS comes back. It's America (too big to fail). I guess its hard being an engineer and understanding math. I think the average American could use a dose of "political math" to understand why any politician thinks there is a snow balls chance in hell of growing out of this morass against the backdrop of an aging demographic, high unemployment, unprecedented social welfare, lost jobs being reported ny most major corporations numbering in the tens of thousands a week! What if it is different this time? That 22 short VXX could single handidly break a portfolio. But heck what do I know?? All the short puts in this portfolio....not good. And again it points to the wisdom of covering your risk. Hell the short 50 ROC August puts could and should have been covered for peniies last week, now they're dollars in the money!! Sometimes this advice really seems FOOLISH, but hell it's got to be a boat load easier to take a deep breath when you're livlihood is taking in money for advice and less dependent on how good that advice is.

  • Report this Comment On August 08, 2011, at 7:05 PM, TMFUltraLong wrote:

    Matt,

    Thank you for saving me from probably 20 10% promise articles today....LOL

    TMFUltraLong

  • Report this Comment On August 08, 2011, at 7:14 PM, PeyDaFool wrote:

    Excellent article as always, Matt.

    The only difference I see between the market this week and the markets of the past few weeks is a significant trading discount.

    I've picked up shares of Waste Management (WM), Dover (DOV) and Conoco Phillips (COP) at considerable discounts over the past week.

    For dividend, value investors like myself, I am ecstatic about this pullback and look forward to the market dropping more based on increased fear and volatility.

    I'm happy to park my money in these dividend stocks and reinvest for the long term.

    Fool on!

  • Report this Comment On August 08, 2011, at 8:23 PM, jrdavis38 wrote:

    URGENT NEWS: GOLD PRICES WILL DROP

    SHARPLY JUST LIKE OTHER

    INVESTMENTS

  • Report this Comment On August 08, 2011, at 8:46 PM, JH963 wrote:

    Some selling was warranted, but the rest was just a panic sell off. Picture an ant hill that's been disturbed.

  • Report this Comment On August 08, 2011, at 9:15 PM, ahemhmm wrote:

    I think to get a better insight into the big picture we are dealing with it is well worth watching the documentary called "The Money Masters".

    I think it is quite interesting to learn more about the system and what presidents and nobel price winning economists had to say about it.

    http://www.youtube.com/watch?v=JXt1cayx0hs

    Is there any hope that the government will ever print debtfree money again? "If a government is able to issue a dollar bond it is also able to issue a dollar bill"

    Why aren't we doing that and solve this crisis and get ourselves out of debt!?

    Please realise that government debt is not the same as individual debt. Government debt is called debt because the ONLY way for a government to have any cash at all is by selling bonds because our governent is not allowed to print US money, we are shackled to Federal Reserve money for which we have to pay interest. The Federal Reserve is a privately held Bank (two of the many board members are appointed by congress for 14 year terms) a bank which has grown by far more powerful than the government. Obama may be president of the USA but Bernanke and his organisation are the emperors of the US and the world.

  • Report this Comment On August 08, 2011, at 9:20 PM, Gary158 wrote:

    Same old story. Horrid news, talking heads spouting how great things are. Sold all but a few blue chips 2 weeks ago. Should have sold them too.

  • Report this Comment On August 08, 2011, at 9:22 PM, Monica109 wrote:

    I wish I have more cash to scoop up the shares of well-managed companies! I am currently reading "Notes to the Prime Minister," a book on how the Prime Minister of Malaysia learnt to deal with the Asian Financial Crisis in 1997/1998. Good reading for those who are interested in Malaysia.

  • Report this Comment On August 09, 2011, at 12:46 AM, shamapant wrote:

    Better yet, keep on the ticker feed and watch for some bargains!

  • Report this Comment On August 09, 2011, at 1:24 AM, burningdaylight2 wrote:

    I will be getting my favorite Rule Breakers and lowering my average cost.

  • Report this Comment On August 09, 2011, at 5:15 AM, littleskylark wrote:

    more importantly, where is the bottom?

  • Report this Comment On August 09, 2011, at 10:55 AM, TMFKopp wrote:

    @TLassen

    "Maybe you can help me understand why the 'money' is going to US treasuries and bonds following a downgrade of the US credit rating?"

    That's the trillion dollar question. I think it says a little something about what actual bond investors think about S&P's call....

    Matt

  • Report this Comment On August 09, 2011, at 11:03 AM, TMFKopp wrote:

    @arizonamike303

    "You're supposed to be the big brains and all, didn't you see this coming?"

    Hmmm... I'm not sure I've ever referred to myself as "the big brains." Regardless, this is a mixture that's part economic and a whole mess of psychology. The latter is almost impossible to predict, so I generally don't bother trying.

    Instead, I buy stocks when they look cheap / have good returns expectations and buy more when investors sell off stocks that are already cheap. If you're looking for somebody who can consistently predict these kinds of moves with a high level of accuracy, you've got the wrong fella (and if you find somebody that can do that, let me know -- I've yet to run across somebody with that superpower!).

    Matt

  • Report this Comment On August 09, 2011, at 11:06 AM, TMFKopp wrote:

    @TMFUltraLong

    Haha, well played!

    @PeyDaFool

    I'm right with you. I've definitely reduced my cash balance over the past few days.

    @littleskylark

    "more importantly, where is the bottom?"

    Ummm.... I'm sitting on it? :)

    Matt

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