Is the Recent Stock Market Decline a Harbinger of Things to Come in 2014?

26 Jan

2013 was a great year for the U.S. stock markets — with all major indexes posting double-digit increases. What drove 2013’s results?

  • A stronger economy
  • Declining unemployment
  • The Federal Reserve’s decision to keep the “pedal to the metal”
  • Better consumer confidence
  • A calmer global marketplace than in 2012
  • Low interest rates, giving investors fewer choices beyond stocks

So, why is the start of 2014 such a downer?

  • Some stocks had become overpriced; so many investors sought to maximum their returns by selling
  • The Federal Reserve’s announcements about further easing off on the use of its stimulus tools
  • The worrisome nature of several trouble spots in foreign economies, especially the slowdown in the Chinese economy

What’s ahead now? This is a question subject to various competing answers – just like both bulls and bears see different opportunities and risks in the stock markets. And remember, the economies of countries around the world are highly interconnected.

Consider these observations by Nathaniel Popper, writing for the New York Times:

“The ascent of developing countries over the last decade has been fueled by two global trends: the steady rise of China and the willingness of the Federal Reserve to stimulate the economy. Now, with both trends starting to retreat, investors have been heading for the exits in markets as far removed as Buenos Aires, Istanbul, and Beijing, with effects spilling over into the rest of the world.”

“The concerns about developing economies are being heightened by the Fed’s recent decision to begin pulling back on the bond-buying stimulus programs that have helped keep interest rates low around the world. Now, many countries that had come to rely on those low rates could face a surge in borrowing costs and a period of painful readjustment.”

“Economists are carefully watching the United States for any signs that it is vulnerable to the weakness overseas or that the economic recovery is slowing independently. The most recent monthly employment report showed a sharp slowdown in job creation for the first time in months and data this week showed that home sales came in slightly lower than expected.”

Click the image below to read more by Popper.
 

Photo by Jason Decrow/Associated Press

 

One Response to “Is the Recent Stock Market Decline a Harbinger of Things to Come in 2014?”

  1. jarago2@pride.hofstra.edu February 17, 2014 at 1:31 pm #

    It is interesting how expectations affect the market. However, the market is look more grim because of the uncertain more than expectation. The expectation is low because of the uncertainty how the market will reality act in reaction to these two changes. I believe these changes were going to occur and this would be the initial reaction. However, these changes were implemented because of the original outlook for a more stable market.

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