On Tuesday, concerns about the manufacturing sector of the economy caused the major indexes to tumble on heavy transaction volume. The first trading day of September saw the Dow Jones Industrial Average fall 355.45 to close at 8,308.05. The S&P 500 Index lost 38.05 to end at 878.02. The NASDAQ Composite Index finished off 51.01 at 1,263.84.
The manufacturing sector of the economy is showing indications of only nominal growth. Layoffs have accelerated as large manufacturing firms and other companies in the product supply chain adjust costs to reflect anemic levels of business spending.
In our regular Apple Stock Watch reports we have been following reports that the robust growth of the second calendar quarter, and last quarteris marginal rate of growth, were due in large part to a build-up in inventories in anticipation of renewed spending. Business spending has not kept pace with manufacturing output, and inventory levels may need to come down before the manufacturing sector shows strong signs of recovery.
In Tuesday trading, Ford Motor Company shed more than seven percent of its value, while Hewlett Packard dropped more than six and one-half percent. Apple Computer ended Tuesday trading down four and three-quarter percent, shedding $.70 to close at $14.05, near its 52-week low.
At that stock price, Apple has a market cap of US$5.042 billion. With cash holdings of US$4.3 billion, Wall Street is currently valuing Appleis assets at less than US$800 million. This includes the companyis plants, physical facilities, inventory, brain trust, and extensive patent portfolio.
Apple is cash rich and has one of the strongest balance sheets in the tech sector. For the most part Appleis management has attempted to ignore signs of slow growth in the economy, and the company continues to roll out new retail stores along with new products and services. The drop in Appleis stock price on Tuesday was in sympathy with the overall market. However, new PCs are not on the list of priorities for most consumers at this point in time. The amorphous but much heralded rebound in consumer and business technology spending may take at least another quarter before it even begins to take shape.
Consumers have continued to spend despite warning signs that consumer confidence has dropped and concerns about the levels of consumer debt. The precipitous drop in interest rates has fueled consumer spending through low rates on home equity loans and aggressive promotions from auto makers and other manufacturers.
However, interest rates can not be brought much lower and economists may soon raise concerns that low interest rates and aggressive promotions may have only shifted many purchases from one period to another and that eventually consumer spending may be exhausted as the catalyst for continued economic growth.
Tuesdayis trading could be symptomatic of the end of the long summer break and that traders are responding to the current economic reality. This is an election year and attention is focused on President Bush and the Congress and whether or not a new economic stimulus plan will soon be in the offing.
Please see Thursday morningis regular Apple Stock Watch report for more information and a review of Wednesdayis activity on Wall Street.