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Stocks tumbled today with investors bailing out of a variety of sectors in a broad-based end-of-the-year sell off. The Dow Jones Industrials Average suffered its worst one-day point loss in two months, as developments in the bond market that have typically foreshadowed recessions spooked investors, and overshadowed a sharp drop in energy prices.

The Dow Jones industrial average closed down 105.50 to 10,777.77, the Standard & Poor’s 500 index closed down 12.12 to a 2-week low of 1,256.54 and the Nasdaq composite index lost 22.53 to 2,226.89. All three indices lost around 1% each. With just three trading sessions left for the year, the Dow has practically lost all its gains, the S&P 500 is up 3.8% and the Nasdaq is up 2.4%.

The market breadth turned negative for the day and volume was light. On the New York Stock Exchange, losers beat winners by more than eleven to five on volume of 915 million shares. On the Nasdaq, decliners topped advancers almost three to one on volume of 1.05 billion shares.

Investors were bothered by weakness in energy and tech stocks and a brief inversion of the yield curve, which revived worries about a slower economy The Treasury yield curve inverted — shorter-term maturities yielded higher interest rates than longer-term maturities — for the first time in five years. The only time in the last 30 years that an inverted curve wasn’t followed by a recession was in 1998, when it inverted briefly during the Asian financial crisis. This ‘Inversion’ is not a good sign as it suggests liquidity is being drained from the market at a rapid rate. This is a good indication for the Federal Reserve that they may have raised interest rates too far.

Amongst losers, American Express closed down $1.03 to $51.28, Home Depot lost $0.55 to $41.04, 3M lost $1.11 to $77.49, and Intel slid $0.49 to $25.48. Amazon closed down $0.72 to $48.50, eBay lost $0.86 to $43.75, and the Goldman Sachs Internet index lost 1.3%. Guidant closed down $2.29 to $64.69, on reporting that sales and earnings in the fourth quarter will miss forecasts. Guidant is also in the middle of a takeover struggle between Johnson & Johnson and Boston Scientific. Amongst oil stocks, Exxon Mobil closed down $1.19 to $55.91, and Valero Energy closed down $1.82 to $51.01. Sirius Satellite Radio was amongst the few gainers that closed up $0.16 to $6.99, after announcing that its subscribers had topped 3 million.

The January natural gas futures contract tumbled $1.261, or 10%, to settle at a 4-month low of $11.022 per million BTU. February crude closed down 27 cents at $58.16, paring earlier losses to a 4-week low of $57.30 in the final hour of NYMEX trading.

All the best,
Manuel Jesus-Backus
The Portfolio Crafter