When Dow skidded 2.65% or Nasdaq suffered bungee drop 3.85%. Most people will get very excited and surely want to find some kind of explanation for it.
No matter where they look, investors are seeing economic trouble.
Stocks and interest rates plunged Tuesday after signs of slowing economies from China to the U.S. spooked traders who were already uneasy about a global recovery. The Dow Jones industrial average fell 268 points, or 2.7 percent, and dropped below 10,000. The benchmark Standard & Poor's 500 index dropped 3.1 percent to close at its lowest level since October.
The smarties say:
Earlier in the day, the Conference Board downwardly revised a leading indicator of Chinese economic growth. Investors were also jittery about the expiration of a European Central Bank program to extend 12-month financing to European lenders.
A double-dip recession is still widely viewed as unlikely. But the drop in confidence is just the latest sign suggesting the economy could lose steam in the second half of 2010 and perhaps grow more slowly than in the first half.
Weak job creation is a central part of the problem. Friday's report by the Labor Department on the job market in June is expected to show private-sector hiring perked up in June as the Census Bureau laid off temporary workers. But gathering signs of economic headwinds suggest future job growth could be slim.
Among these headwinds: signs that the housing sector is heading into a new downturn, and financial conditions that have turned less supportive of growth as stock prices decline, the dollar strengthens and credit markets struggle. The global backdrop has grown more uncertain as European governments such as the U.K. and Germany turn their attention to closing budget deficits.
All these arguments are old arguments -- no case I said. The real problem is liquidity is thin. When someone decided to unload, thinly traded market tend to magnifying the volatility. Reduced betting size, less active are the best way to save ourselves from heartache and headache. Unless you really don't care and taking a long term position, buying something cheap at any given day. I mean really a long term position before you call your broker and NOT after you buy and lost money then changing your position.