Headwinds Roil Stocks
Most stocks are down today following the huge selloff in China's benchmark stock index overnight and a very weak U.S. economic report this morning. We want to update you on the decline and are not taking any action in this Alert.
The Shanghai Composite, a major index of Chinese stocks, fell almost 9%, its largest decline in a decade. Share prices in the index have been in a steady uptrend for more than 20 straight months and were up an average of 130% in 2006 alone. But now investors appear to be locking in gains as the Chinese government is looking to slow the pace of economic growth in the country.
Also contributing to today's downturn in the major U.S. indices is a weaker-than-expected durable goods report. The Commerce Department said that orders for big-ticket items in January declined 7.8%, which was much lower than the 3.2% drop economists had forecast.
In the early action today, most of our model portfolio positions are trading lower along with the market. In past Weekly Summaries, we've mentioned that the Russell 2000 has been on a tear, notably over the past 14 months, and shares were likely to pull back. As we've pointed out, though, a pullback could be a healthy move and would create buying opportunities for us -- thus the reasoning behind our large cash position.
The Russell 2000 is currently down 1.7% today, which is a small pullback considering that the index is up about 20% since mid-August. We could see shares fall further as cautious headlines -- such as the one in The Wall Street Journal today warning that bank reserves are at their lowest levels in 16 years -- begin to surface.
Overall, we believe this pullback is healthy and that the economy is strong, with consumer spending remaining robust. If stocks continue to retreat, we will likely look to our Watch List for new initiations. As always, we will keep you updated.
Frank Curzio is a research associate at TheStreet.com.
TheStreet.com is a publisher and a registered investment adviser. TheStreet.com Stocks Under $10 contains the authors' own opinions, and none of the information contained therein constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. You further understand that the Stocks Under $10 Investment Team will not advise you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent any of the information contained in TheStreet.com Stocks Under $10 may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.
Past results are not necessarily indicative of futureperformance. Investing in the stocks chosen forTheStreet.com Stocks Under $10 model portfolio is riskyand speculative. The companies may have limited operatinghistories and little available public information, and thestocks they issue may be volatile and illiquid. Trading insuch securities can result in immediate and substantial losses of the capital invested. You should use only risk capital, and not capital required for other purposes, such as retirement savings, student loans, mortgages or education. As an editorial employee of TheStreet.com, Curzio is restricted from owning individual securities other than stock or options in TheStreet.com, Inc.
-----------------------------------------------------------Visit the TheStreet.com Stocks Under $10 site (available to subscribers ONLY) by clicking here: http://www.thestreet.com/k/su/index.html
To view TheStreet.com Stocks Under $10 portfolio on theWeb, click here:http://www.thestreet.com/k/su/portfolio.html
For customer service on your account please visit:https://secure2.thestreet.com/cap/selfserve/
-----------------------------------------------------------
(c) 2007 TheStreet.com, Inc., 14 Wall Street, 15th Floor,New York, NY 10005, Attention: Customer Service Department