Why is the stock market struggling again?
For the second straight trading session in a row, stocks on Wall Street slumped considerably. From the Dow Jones Industrial Average to the Nasdaq composite, numbers were lower across the board. Is this a new downward trend for a market that appeared to be recovering?
According to market analysts, recent losses are due to a loss of confidence among consumers. Companies are nervous that these consumers and their lack of confidence will put even more pressure on an economy that is barely crawling out of a recession. We’ve had five or six months of steady advancement in the stock market, and nervous consumers at this late date doesn’t make anyone feel good about their economic future.
The Dow Jones industrial average lost a total of 186 points, or 2% of its volume. This was actually a gentle landing for a market that dropped as much as 204 points during the day’s trading. The S&P 500 index fell an even greater amount than the DJIA, ending 24 points lower than its beginning, or a total loss of 2.4% of volume.
These new low numbers mean that both market indicators closed after today’s trading at 4 week lows. The Nasdaq composite index was an even greater loser than either other indexes. The Nasdaq fell 55 points or 2.8% of total volume to end at a one month low.
In the last four to five weeks, the S&P 500 index had gained over 15% of its index. Some will say that a pullback in value is evident after such a lengthy run of positives, but a dip to a one month low wasn’t expected. Thankfully, most market analysts are suggesting that this brief dip is not a signal of things to come, but a bump in the road. The current financial markets in America have seen growth in stock value and in industrial sectors, so the pullback from a few months of high values won’t be so much a crash as, well, a pullback.
As of last Thursday, the Dow was at a nine-month high and the Nasdaq and S&P 500 were at 10-month highs, bolstering some economists prediction that the worst of the recession was behind us.
The bad news started rolling in last week after a consumer sentiment report last Friday that was far worse than had been predicted. After months of news that the economy was stabilizing, any blip on the radar is newsworthy, just don’t expect this current hiccough to be permanent.
There’s a bit of voodoo at play in the system. Wall Street keeps something called a VIX index — technically this is known as the “CBOE Volatility index”. It is basically a single digit representation of consumer fear. This index has soared as much as 18% in the last week — so traders should have expected this downturn.
Already, some sectors are stabilizing — namely housing and manufacturing. There is still a very weak labor market to contend with, and consistently higher oil and gas prices are helping raise that consumer fear index.
The stock market declines that went down on Monday were what are known as “broad-based” losses — to put this in layman’s terms, 28 of the 30 stocks that Wall Street uses to compile the Dow Jones Industrial Average faced losses. This means losses are being posted across all sectors of financial markets.