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Stock Market Hits A Skid

Stock Market Hits A Skid

On the heels of a banner 2013, Wall Street is sputtering out of the gates in 2014.  In particular, the last few days have seen the biggest one-week decline since late 2011.  Overall, the Dow is down nearly 5% after five straight days of losses dating to the middle of last week.  The reasons for the decline are multiple and somewhat complicated.  "All the trouble is really starting in the emerging markets right now," says Steve Russolillo, market analyst with the Wall Street Journal.  "And that has spilled over into the U.S., and the U.S. stock market is feeling the pain right now."  Those emerging markets are places like Turkey and Argentina, which have begun selling off based on concerns about China's weakening economy and the pull-back of the bond-buying stimulus program in the U.S.

That Federal Reserve stimulus program, which involves the Fed buying billions in bonds every month, has long been the subject of consternation among investors about when, and how, it would end.  The Fed recently began tapering back the stimulus, and could decide to take further action at this week's meeting.  But Russollilo tells KTRH there may not be an easy answer.  "Less stimulus could make it tougher for the markets to rally," he says.  "On the flip side, if they change course and say we're not going to taper this month, that could signal that the Fed is more worried about emerging markets than people think they are, so that could also be cause for concern."

Besides uncertainty over the stimulus program and concerns about China, there is another possible explanation for the recent market drop.  It could be a market correction, after a year in which all indexes pretty much saw steady, unfettered growth.  "A lot of people are saying that a drop like this is long overdue," says Russolillo.  That's because a true market "correction"--defined as a decline of 10% or more--hasn't happened since mid-2011.  Overall the market has been on a steady climb since 2009, and the Dow was up 26% in 2013 alone.  Russolillo says time will tell if this recent decline is a trend or an anomaly.  "It's still way too early to say whether the markets have peaked--this is still a very minor correction in the grand scheme of things."

 

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