The Dow Jones Industrial Average (^DJI 0.57%) is down 155 points, or 1.05%, as of 1:15 p.m. EDT as the sell-off in the U.S. stock and bond markets continue and investors' fear of a slowdown in China grows. The S&P 500 (^GSPC 0.04%) is down 1.35%.
There were no U.S. economic releases today. Last Wednesday, Bernanke spooked markets when he said the Fed could begin tapering its asset purchases as soon as the end of 2013. The bond market has been selling off, with the rate on the 10-year Treasury now up to 2.6% from 2% a month ago. Other popular yield plays are down as well, with the Alerian MLP Index down 4.1% since Wednesday and the Dow Jones Equity All REIT Total Return Index down 7.5%.
To add to investors' worries, China is experiencing a credit crunch, with the Shanghai Interbank Offered Rate, or Shibor, spiking to a high of 13%. Shibor is the rate at which Chinese banks lend to each other overnight. This is hurting the smaller and weaker lenders, and many small banks' share prices fell by 10% today -- the maximum daily amount allowed in China. The Shanghai stock market finished down 5.3%, Hong Kong's Hang Seng was down 2.2%, and Japan's Nikkei down 1.26%.
Investor fear was also hurt by a report from Goldman Sachs over the weekend in which the investment bank lowered its estimates for Chinese GDP growth from 7.8% to 7.4% for 2013 and from 8.4% to 7.7% for 2014. Goldman reasoned, "The recent tightening of the interbank market has sent a strong policy signal that the strong credit growth earlier in the year will likely not continue." As China's growth slows, investors worry the effects will spread, as China's economic expansion has driven the large advances in commodities markets over the past decade.
While it may seem there is nowhere to hide from the market's turbulence, health care stocks are fighting the Dow's drop. Johnson & Johnson (JNJ 0.19%) is up 1.9%, while UnitedHealth Group (UNH +1.08%) is up 1.1%. Health stocks' results are based on government policy involving the health care market and are not greatly affected by worldwide growth. Obamacare should be a huge boon for health care companies as millions of Americans become insured. While not a health insurer, Johnson & Johnson should also benefit as millions of newly insured Americans gain access to the company's drugs. Last week J&J announced it had added to its massive portfolio by acquiring Aragon Pharmaceuticals, which has a prostate cancer drug in development.
Long-term investors would do well to ignore the market's ups and downs, focus on their investing plans, and keep their wits about them. If the drop continues, opportunities will arise for long-term investors to pick up undervalued companies.
