And you thought October was the dangerous fall month for your investments.
October is certainly famous for its crashes, but November can pack a punch, too. This year is turning out to be a prime example, with four more trading days remaining in the month.
The Standard & Poor's 500 index is on track to turn in its worst month in five years, falling 9.1 percent for November so far. The Dow Jones industrial average is down 8.5 percent, and the Nasdaq stock index is down 11.1 percent for November. All the major stock indexes struggled through another bad day yesterday. That pushed both the Dow Jones and S&P 500 averages down 10.1 percent from their highs reached in October, making the current decline an official stock market correction.
The shared theme of all corrections is fear, and it's clear what scares investors today. More worries about subprime mortgages and other credit problems are affecting all kinds of stocks all over the world. Investors worry the whole economy could be dragged into a recession. But the stock market isn't the only place you can smell the fear.
The yield of US government bonds and other securities plunged yesterday, as investors piled money into the safest haven of them all. Treasury yields decline when demand for the securities increases and investors are willing to accept lower interest rates on their money.
The yield on 10-year Treasury notes sunk from just over 4 percent to 3.841 percent yesterday, the lowest since March 2004. Yields on 30-year Treasury bonds fell the most in three years, declining to 4.29 percent.
Dan Fuss, manager of the Loomis Sayles Bond Fund, says some of those sharp Treasury moves were heavily influenced by technical factors and thin trading. Some firms that are very active in Treasury markets, including Goldman Sachs, close their fiscal year at the end of November and are reluctant to become active traders this week, he says.
"There are these short-term factors, as well as a flight to quality," Fuss says.
But that flight to quality has been going on almost all month. Those 10-year Treasury yields that sunk below 3.9 percent yesterday started November at nearly 4.5 percent, a huge move in one month.
Treasury yields are an important way to measure market fears because they offer the clearest picture of investor sentiment in tough times. For one thing, government fixed-income investors are accepting rates well below inflation in return for safety in many cases today.
The conventional relationship between 10-year Treasury yields and home mortgage rates is also becoming distorted. A year ago, the leading index of mortgage rates yielded 1.15 percent more than 10-year Treasuries. That spread had increased to 1.69 percent yesterday. Mortgage rates are not falling in step with Treasury yields.
John Forelli, at Independence Investment LLC in Boston, points out that fearful investors are nothing new. The usual solution: Fed interest rate cuts. "The problem with that scenario is that it could take several months to play out this time," he says. "You may not have a catalyst until the end of January."
For now, the fear factor is making November a month to forget.
The Red Herring They love you, they love you not: One of the stock market's hottest stories of the year, the booming initial offering of VMware Inc. and surge of its majority owner, EMC Corp., has cooled this month. VMware, which peaked at over $124 per share four weeks ago, closed at $71.44 yesterday. EMC has fallen from more than $25 to $17.37 yesterday.
Steven Syre is a Globe columnist. He can be reached at syre@globe.com.
