The New York Times reports that global stock markets are tumbling. Nobody really knows why but the latest theory is that investors are concerned about the capital problems at Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) about which I posted yesterday.
Here's a survey of some of the global market damage:
- Nikkei 225 stock average fell 2.5%
- The Hang Seng index in Hong Kong down 3.3%
- S&P/ASX 200 index in Sydney declined 1.4%
- In London morning trading, the FTSE 100 index was down 2.7%
- DJ Euro Stoxx 50 index, of euro zone blue chips, fell 2.3%
- DAX in Frankfurt fell 2.4%
- CAC 40 in Paris sank 2.4%
The key point is that nobody really knows why the market moves up or down. It probably has something to do with the reasons that the biggest investors are buying or selling stocks. But those investors don't seem to like tipping their hand to the media.
Unless there is a catastrophic failure of one of the big financial institutions, it's likely that the media will stop reporting on their perilous condition. And it will shift attention to one of the other generic causes for stock market movements -- rising oil prices, weak employment numbers, disappointing earnings by a market bellwether, or tough talk in the Middle East.
I don't know what will happen next but at some point stocks will lose so much value that they will become bargains. The challenge for investors is to buy when the prices are lower than companies' earnings growth potential. If investors buy stocks at a lower price but earnings are likely to shrink, they're not going to get a bargain.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter
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