What's Happening in the Stock Market?

We have been working on nice posts for this blog on the latest list from Forbes Magazine of the world's richest people and on the impact of taxes in our lives. But in the meantime, daily developments in financial markets are getting way ahead of us, and the business economist in our blood says, "Carol, you have to say something to them about these stock prices."

The Dow Jones Industrial Average dropped 242.66 points today, March 13, a one-day decline of 2% to close at 12075.96. In the recent decline, the worst single day was February 27, when this widely watched 30-stock bellwether fell 416.02 points or 3.3%. The recent peak was 12,786.64 on February 20. As of this afternoon's close, the index is off 5.6% from that February 20 peak.

Numerous factors have played a role in the downturn, some of which we have talked about here as long ago as last summer. We talked about how little consumers (that's us!) are saving and how big some people's debt loads are. Some of that is coming home to roost. The Mortgage Bankers Association, a national industry group, reported today that almost 5% of home mortgages were delinquent at the end of 2006, meaning the homeowner was at least 30 days behind in making payments. A record 0.54% of mortgages entered foreclosure during the fourth quarter. The payment performance on loans of all quality types worsened, but was especially bad for FHA mortgages, up from 12.8% delinquent on September 30 to 13.46% on December 31. Delinquencies on so-called "sub-prime" mortgages, which are loans to people whose credit is substandard to begin with, came to 13.33% in December, up from 12.56% just three months before. People who have adjustable rate mortgages, regardless of their credit quality, are having a harder time as interest rates moved up in general last year, raising their mortgage payments significantly. This is tough for them to manage in the face of high fuel costs too.

In that regard, the US Commerce Department reported today that consumers' purchases at retail stores moderated in February, just barely inching ahead from January, and they declined outright when gas stations' sales are excluded.

Some international markets have also been shaky, as that first big down day for the Dow Jones February 27 came on the heels of a shake-out the night before in the Chinese market. China's economy continues to expand rapidly, but its government is known to want to restrain its growth and potential inflation, making investors nervous.

We're not political scientists, but we'd surmise that uncertainty in the US government is making US investors nervous too. The resignation of a top aide in the Justice Department adds to a list of other political concerns.

Fortunately, our job here at Ways of the World is not to tell you how or when these market conditions will all be straightened out. What we do know is that aside from the housing and mortgage situation, the underlying economy has been holding in fairly well in recent months. Jobs have continued to increase, albeit modestly, and unemployment has remained low. Inflation in the US has stayed remarkably steady, so that those high energy costs don't seem to have worked their way into prices of other goods and services. Growth is continuing in Europe and among our other major trading partners. Today's Wall Street Journal calls our attention to the boom in Russia, which, as an oil producer, is benefiting from high oil prices, and their consumers are spending. Still, there's plenty of risk, economic and political, in many parts of the world, and risk makes us all nervous. Stay tuned, then, and perhaps the best response you can make to nervous markets is to put your tax refund in your savings account or use it to pay down some credit card debt.