The Dow's Plummet Continues. Is More Stimulus on the Way?


A quick scan of the headlines shows the pessimism that has saturated the markets today. There's a litany of reports on the Dow falling into negative territory in 2012, the awful jobs report today, and a sprinkle of euro worries in the background. The Dow Jones (INDEX: ^DJI) ended the day down 275 points, or 2.23%. That's actually a softer fall than the S&P500's drop of 2.41% or the Nasdaq's (INDEX: ^IXIC) 2.82% plunge.

Growing fears
After the morning was consumed with today's jobs report, attention shifted to the implications this afternoon. Much as the financial crisis eventually spread throughout Europe after the continent was initially spared the worst of the 2008 U.S. banking collapse, the effect of the current crisis in Europe is now spreading globally.

What are the implications of that? In the United States, more stimulus could be on the table. Today, Morgan Stanley raised its estimates of the likelihood of new federal stimulus from 50% all the way up to an 80% probability.

Recent Fed meetings had hinted that there wouldn't be more stimulus until the economy showed more deterioration. With the jobs market posting its worst gain in more than a year, that time appears to have come.

Stimulus is quickly entering the forefront of central bankers' minds. That could be an exhausting thought to investors who are now sitting on their fourth year of continued bailouts and government boosting of economies. The stimulus situation in America has become political enough. I'll just say that whether you like it or not, there is likely to be more quantitative easing. Adjust your investing accordingly.

On the China front, I will reiterate concerns I've been espousing for weeks: While investors will cheer in the short run, it'll be bad long term if the country moves forward with a stimulus that deepens its reliance on investing in infrastructure for growth.

Zooming out to stocks
Moving back from the macro picture, the worst losses today are concentrated in the energy, industrial goods, financial, and technology sectors. As of this writing, none of the 100 largest technology stocks is positive on the day.

Not surprisingly, the biggest losers are concentrated along Internet stocks. Despite continuing upgrades from analysts, Facebook (NAS: FB) is down another 5.7% after a late-day rally yesterday. Groupon (NAS: GRPN) is the worst performer in all of tech, down 9.6%. A lock-up period expired today, which means insider selling could be a culprit for its outsized decline. The company is now down from its earnings-related jump last month.

Looking at energy, some of the biggest losers are companies with shaky balance sheets. Oil is off 4.15% today, and a global downturn will send it even further south. That's bad news if you're a company with a high debt load and can't be profitable at today's energy prices. Berry Petroleum (NYS: BRY) , a company with $1.4 billion in net debt and negative earnings and free cash flow, leads today's energy losers.

Think big picture
Remember that the greatest investors don't react to each day's events. Instead, they add them to a continuing flow of information, going contrarian when opportunity strikes. With the herd moving toward the exits today and more volatility ahead, opportunities will arrive for the patient investor. That's not to say investors should run out and buy hand over fist today, but instead should stay invested in high-quality companies. If the pessimism proves unwarranted, add to your best holdings.

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At the time thisarticle was published Eric Bleeker owns shares of no companies listed above. The Motley Fool owns shares of Facebook. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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