Economic Troubles Intensify, Stocks Buried

The Dow Jones Industrial Average fell 266 points yesterday, or 2.2%, its worst one-day loss since June 1. The Dow’s eight-day losing stretch was the longest since October 2008, a stretch that followed the collapse of Lehman Bros. at the peak of the U.S. credit crisis. The S&P 500 posted a new closing low for 2011 and has turned negative for the year. This all on a day when the market instead should have bounced up, since Washington had finally overcome the debt ceiling crisis that has gripped the city for months. Political uncertainty was responsible for much of the previous seven-day fall.

In mid-January, our FOX Index of a healthy stock market moved into positive territory for the first time in its three-year existence. The Index defines “healthy” as 15,800, a total formed from adding a Dow of 12,000, an S&P 500 of 1,300, and a NASDAQ of 2,500. Now the FOX Index is back in negative territory once again, with the Dow at 11,867 and the S&P at 1,254, both below their “healthy” levels. While the NASDAQ is still “healthy” at 2,669, overall the Index’s 15,790 total is a negative -10 (see chart).

A reported June drop in consumer spending, the first such decline in almost two years, sent the market down yesterday, but the real drag comes from both last Friday’s downward revision of the GDP, and the hangover from June’s terrible jobs report. The market will be on pins and needles at least until Friday’s July jobs and unemployment report.