By MATTHEW CRAFT
NEW YORK — Concerns over high stock prices and global politics continued to plague markets Monday as major stock indexes ended with slight losses in another day of choppy trading. Pro-democracy protests in Hong Kong, a major world financial center, added to the host of political concerns on investors’ minds.
It could have been worse. The Dow Jones industrial average (^DJI) sank 178 points in the opening minutes, a sudden drop of 1 percent, but then it climbed back.
“You have a ton of risks that have brought back in the market’s focus,” said Brad McMillan, chief investment officer for Commonwealth Financial in Waltham, Massachusetts. “There’s just a heck of a lot of uncertainty right now.”
The Dow lost 41.93 points, or 0.2 percent, to 17,071.22. The Standard Poor’s 500 index (^GPSC) lost 5.05 points, or 0.3 percent, to 1,977.80. The Nasdaq composite (^IXIC) slipped 6.34 points, or 0.1 percent, to 4,505.85.
DreamWorks Animation (DWA), the studio behind “Shrek” and “Madagascar,” soared 26 percent following reports that Japan’s SoftBank Corp. is in talks to buy the company. DreamWorks gained $5.82 to $28.18.
The market has turned choppy in recent weeks, flipping between solid gains and steep losses. Since hitting a record on Sept. 18, the SP 500 has slipped 1.7 percent. Coming after a calm summer, the slide has set off a flurry of worried calls to brokerages.
John Canally, chief economic strategist at LPL Financial in Boston, said many investors think the market has gone too long without a major fall. “I can’t tell you how many calls we’re getting now asking, ‘Is this it? Is this the big one?'” he said.
One reason for the recent turbulence is that the stock market appears “priced for perfection,” McMillan said. It’s an increasingly common saying among investors, and it means the SP 500 is so high that corporate profits and the economy have to keep improving just to sustain current prices. Good news isn’t enough.
“The question is no longer, are we doing well? It’s, are we doing even better?” McMillan said. “When you pay for perfection, anything shy of that is a disappointment.”
At current prices, investors are paying $16.69 for every dollar in company earnings, according to data from FactSet. That’s 10 percent above the long-term average. “There’s a certain amount of faith needed at this level,” McMillan said.
Traders have pushed the stock market lower despite a string of encouraging economic news. The latest came from the Commerce Department, which reported on Monday that consumer spending rose 0.5 percent in August from the previous month. Auto sales made up about half of the increase. It was further evidence that the economy is on solid footing heading into the end of the year.
“The consumer is back in the driver’s seat where they should be, moving the economy ahead at what looks like a strong 3 percent pace,” said Chris Rupkey, chief financial economist at the Bank of Tokyo in New York, in a note to clients. “Somebody please tell the stock market. Can’t ask more of the economy than that.”
Pro-democracy protests in Hong Kong escalated Monday, raising concerns that a crackdown by the Chinese government could make the situation worse. Thousands of people took to the streets over the weekend in a challenge against Beijing’s decision to limit political reforms. Police fired tear gas and detained 78 protesters.
The situation in Hong Kong weighed on its main stock index, the Hang Seng, which closed with a loss of 1.9 percent. Japan’s Nikkei 225 index rose 0.5 percent, and China’s Shanghai Composite added 0.4 percent.
Major markets in Europe sank. France’s CAC-40 fell 0.8 percent, while Germany’s DAX fell 0.7 percent. The FTSE 100 of leading British companies was flat.
Back in the U.S., NiSource (NI) surged 6 percent after saying that it plans to split off its natural-gas pipeline business into a stand-alone company. NiSource expects that new company, Columbia Pipeline Group, to be listed on the New York Stock Exchange by the middle of next year. NiSource climbed $2.26 to $40.84.
Prices for U.S. government bonds rose, sending yields lower. The yield on the 10-year Treasury note fell to 2.48 percent from 2.53 percent late Friday.
In commodities trading, the price of gold edged up $3.40 to settle at $1,218.80 an ounce, silver rose three cents to $17.57 an ounce and copper rose two cents to $3.06 a pound.
The price of oil rose amid signs that U.S. refineries are demanding more crude oil to boost output of gasoline. Benchmark U.S. oil gained $1.03 to $94.57 a barrel. Gasoline futures increased 3.44 cents to $2.696 a gallon.
Brent crude, a benchmark for international oils, rose 20 cents to $97.20 a barrel in London.
In other energy futures trading on NYMEX, heating oil was flat at $2.70 a gallon and natural gas rose 12.5 cents to $4.154 per 1,000 cubic feet.
What to Watch Tuesday:
- Walgreen (WAG) releases quarterly financial results before U.S. markets open.
- Standard Poor’s releases the SP/Case-Shiller index of home prices for July at 9 a.m. Eastern time.
- The Institute for Supply Management-Chicago release its survey of business conditions for the Chicago region at 9:45 a.m.
- The Conference Board releases the Consumer Confidence Index for September at 10 a.m.
Managed to get that raise or promotion? Fantastic — now don’t go out there and spend it all immediately. In classic “keeping up with the Joneses” fashion, too many of us see an increase in salary or a sudden windfall (like an inheritance) as an excuse to take our lifestyle up a notch. We buy bigger houses than we need, get the latest gadgets even though ours work just fine,and spring for fancy steak dinners just because we can.
Instead, whenever your financial situation gets a boost, consider the best ways to put that money to work for you. The truly wealthy are those whose money continues to grow and earn them more, even when they’re not actively doing anything with it.
The average American household that carries credit card debt holds a balance of around $15,000. If you’re among those who have a credit card balance, you’ve probably seen the little chart on your monthly statement telling you how much you’ll pay in interest over the next several years if you make only the minimum payment. (If you haven’t, look at it.) The same chart will also compare that to a “suggested” payment that’s slightly higher.
Our recommendation? Throw everything you can at paying your balances off as fast as possible. And make sure not to take on any additional debt in the future; if you can’t pay for a consumer good out of pocket, don’t finance it.
We don’t demonize student loan debt the way we do credit card debt because we see an education as an investment — and higher education often is the difference between one income bracket and another. Similarly, many people justify taking out a car loan by stating that they need a car to get to work.
That said, debt is still debt, and the longer you take to pay it off, the more interest you’ll pay. Once you’ve freed yourself of credit card debt, paying down your car and student loan balances should be next on your list.
Whether it’s to handle an unexpected car repair, a sudden illness or a major plumbing problem, you should always have some money set aside to cover unforeseen expenses. Set up a regular monthly transfer from your checking to your savings account to earmark this money before you’re tempted to touch it. If necessary, cut back in another budget category (like eating out or entertainment) to free up the funds to save more.
Putting aside a little each month could prevent you from getting socked with a hefty bill you can’t afford and then need to finance.
No matter your age, you should be adding to your retirement funds — such as your 401(k) or individual retirement account — each month. Just setting aside money sporadically won’t cut it; you need to identify how much you’ll need to live on once you stop working and monitor whether you’re on track to reach that amount.
Here’s a quick-and-dirty rule of thumb: multiply your annual spending by 25. This is the amount you’ll need in your retirement portfolio, if you assume that you’ll withdraw 4 percent per year to live on during your retirement. In other words, you’d need $1 million in your portfolio to live on $40,000 annually. Creating a plan will help you make sure you’re able to retire the way you envision.
A home is a big investment, and sometimes that investment doesn’t wind up netting you the return you thought it would.
The biggest culprit is having too large a balance on your mortgage, which detracts from your own personal stake in the current market value for your home. The sooner you pay this amount down, the better your home equity will be.
You also want to be careful when purchasing a new home. Buying in a neighborhood that’s on the downward spiral or buying the most expensive home on the block, likely won’t net you a good return when it’s time to sell. Also take care to stay away from custom renovations (like turning the garage into a recreation room), which could negatively affect your resale value.
Paying high investment fees eats away at your gains. And since your gains compound over time, this creates a domino effect that can really chip away at your wealth. Take a close look at your investment companies’ fees and shop around to make sure they’re not taking more of your money than they need to be.
If you don’t have a long-term investment vision and are simply playing the market, you could seriously undermine your wealth-building potential. Stop paying attention to market fluctuations, media pundits and the stories of your friends and family. Instead, create your own long-term investment strategy that will maximize your overall returns. Resist the urge it play it ultra-conservative (or fall for get-rich-quick schemes) and educate yourself on the best way to make your dollars work for you.
If you’re having trouble making sense of your options or want a second opinion, seek the help of a trusted financial adviser.
Based on your experience and seniority level, education and industry, you should have a fairly good idea how much you ought to be making at your job. If you don’t, check out a site like PayScale to get a ballpark figure.
If you’re not making what you’re worth, you’re doing more than leaving money on the table; you’re also losing all the compound growth and investment returns that money could be generating for you. Invest in yourself with professional development and continuing education, make the case for that raise or promotion, or seek out a company who will value you higher.