What spooked the market?

US equities are headed for the largest weekly decline in nearly a year and a half.

By Benzinga Jan 24, 2014 11:32AM

Traders work the floor of the New York Stock Exchange on the evening of January 23, 2014 © John Moore/Getty ImagesBy Joel Elconin


With U.S. indexes having the worst performance in months, investors are scrambling to find a reason for the steep decline.


Mainstream Wall Street pundits attribute the decline in the Standard & Poor's 500 Index ($INX) to the contraction in the Chinese factory output released overnight while the U.S. markets were closed.

With China being the growth story over the last 15 years, a sudden contraction in its pace of growth may have worldwide implications.


What cannot be blamed is earnings season. So far, of the 101 index members that have reported, 73 percent have beaten estimates and 66 percent have exceeded sales projections. Also, per-share profit for companies is expected to climb in the fourth quarter along with sales.


So far this year, the economic data that has been released has been benign. The unemployment rate has continued to decline and the economy appears to be improving, albeit at a slow place.


Federal Reserve officials, which use the labor data to determine the rate of tapering, modestly reduced their monthly bond purchases by $10 billion to $75 billion at the December meeting. The lesser-than-expected reduction in bond purchases sparked the year-end rally to all-time highs.


Perhaps social unrest in Ukraine and Thailand that has fostered riots and anti-government protest has contributed to the market's decline and ignited a rally in the gold market.


So, if earnings have been good, economic data benign and the Fed continuing to be accommodative, what is spooking the market?


Nothing. When taking into account the huge gain for the market in 2013 and over the last four years, the expectations for this year's markets are way too high. While ending the year at an all time high, many investors expected to start 2014 the way 2013 ended.


When this scenario did not come to fruition, as evidenced by the market repeatedly failing to make new all time highs, some investors were willing to take some chips off the table. And with a slew of positive earnings reports not pushing the market to new highs, investors have taken “sell the good news” approach as opposed to waiting for bad news to exit.


Also, take into account the wicked consolidation for the index during 2014. Excluding the the two lows made on Jan. 13 (1809.50) and Jan. 14 (1812.75) the index has been confined to less than a thirty point trading range for the year. Very rare indeed.


Now the moment of truth has arrived for the index. Since coming within a few points of the yearly low (1809.75) in Thursday's trading, reaching 1813.75, the index is already attempting to stage a rebound, rallying back to the 1818 level.


If the market can continue the rally, the index may very well drift back to upper end of the year long trading range and make yet another attempt at making new highs.


On the other hand, if the index cannot recover from Thursday's steep decline over the next few days and breaches the yearly low, then investors may be in store for a more substantial correction in the bull market than they were accustomed to in 2013.


Read more from Benzinga

Jan 24, 2014 11:43AM
The market is declining because it was no longer climbing.  There is no mystery here folks.  Wall Street needs to make money and when they can no longer make it on the upside they make it on the downside.  And this market hasn't been based on any fundamentals for so long we certainly will not believe anyone who attempts to pass that crap off on us.  The point we all should remember is fundamental income didn't push this market up so when it does begin the decline, as we all knew it would, all this support nonsense can be thrown out the window. Get out your parachute and enjoy the view.
Jan 24, 2014 12:06PM
Q: What spooked the market?

A: Reality

Jan 24, 2014 12:18PM
I would not be surprised if gold & silver prices jump now.
Jan 24, 2014 1:26PM
The chickens are coming home to roost...
Jan 24, 2014 1:00PM

The market has been waiting for a reason to correct and now it's got currency crisis, falling Treasury rates and some earnings duds.  Only question is are we looking at 5% or 10% or more before Sell in May and Go Away starts too.

Jan 24, 2014 12:37PM
Correction long overdue.  How low is low I wonder?  
Jan 24, 2014 12:19PM
because 85 people can not sustain a global economy.
Jan 24, 2014 11:51AM

I cannot bear the thought of Mr Stanton Puss wandering over to the neighboring estates in search of a consistent meal.  Poor little thing sifting through other peoples' garbage and begging at other peoples' verandas. 

Perhaps it is an opportune time to take a little off the table, yes? !

But if one is say, 100% invested, it is time to take a lot off .

Jan 24, 2014 12:55PM
I think the market is spooking the market now.  VIX has jumped 20%.
Jan 24, 2014 3:00PM

Yeah, with some Currency problems and Foreign Markets in panic mode, not counting a few different Countries woes...

I agree Markets are somewhat spooking themselves and it is an opportunity for some traders and a few investors to take advantage of the dips and swings..

We have had several of these mini-corrections over the last few years...This is a little bit deeper, but happening at a quicker pace or shorter time interval; Making it more noticeable and giving the Media something to rattle on about....

Don't panic just yet.

Jan 24, 2014 5:01PM
Jan 24, 2014 3:19PM
I just knew Merryday, would come out of his cave today...Woulda bet a cookie on it...
Jan 24, 2014 1:40PM
Spooked the market?   Fear of Obama's state of the Union speech?  He might outlaw the Constitution with his Pen and Phone...
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