All good things must come to an end…
A winning investment strategy since the start of the year has been to buy the dips. But that tactic may be changing in the stock market today.
In another rollercoaster session on Wednesday, U.S. equities fell as investors prolonged a recent selloff spurred by the unwinding of bullish bets.
In all, the Dow experienced a triple digit swing Wednesday, an occurrence that has happened twice in the last three week versus only once in 2012.
Meanwhile, the S&P shed 13.61, or 13.61, to 1,612.52, and the Nasdaq was nudged lower by 36.52, or 1.06% to log benchmark's third down day-the worst losing streak of the year.
"Investors continue to assess the risks posed by the U.S. Federal Reserve pulling back on its bond buying program and taking liquidity out of the market," Ishad Siddiqi, a market strategist at ETX Capital shared with CNN Money. The risk of reduced liquidity has markets feeling "uncomfortable" he added.
Prior to the three day rout, the Dow enjoyed 112 trading days without a three day losing streak, the longest such streak in the index's storied history. The previous record occurred in 1935 when the Average went 93 trading days without three consecutive down days.
This year's record rally began New Year's Eve with the Dow soaring 166 points, snapping a five day retreat. The winning streak then continued for some five-and-a-half months before this week's pullback.
The finale cames just one week after Tuesday's record winning streak was also broken.
From early January through last week, the Dow finished up for an unprecedented string of 20 Tuesday's. But Tuesday's bullish charm appears to be over. On Tuesday, June 4, the Dow slumped 76 points. And on Tuesday, June 11, it tumbled 116 points.
Markets are indeed obsessed with trends, and the current one in focus is how long the bull's legs can last without a 5% correction.
According to data from Stone & McCarthy Research Associates, the S&P 500 has relished 142 trading days without a 5% pullback, a stretch that started Nov. 15. It's the longest such streak of this four-year-old bull market.
Not since the immediate days following President Barack Obama's re-election has a 5% drop in the broad-based index befallen.
But this streak is at risk too. Down 3.4% since its May 22 peak, another market selloff could end the stretch.
Stock Market Today: What's Worrying Investors
Market participants are growing increasingly anxious the FOMC will start to tap the breaks on its stimulus measures which have been both a catalyst and a cushion for equities.
In seven of the 15 trading says since Fed Chairman Ben Bernanke's congressional testimony, the Dow has experienced triple digit swings.
"There just isn't much news to offset the potential negative of what will eventually happen, which is the Fed tapering off," Rick Meckler, president of LibertyView Capital Management in Jersey City, NJ told Reuters. "You don't have fundamental evidence that the Fed will or will not be tapering off soon, and the market is caught in the middle period."
Japan is also making investors jittery.
Thursday, the Nikkei plunged 6.4%, the latest in a string of distributing dives that threaten to put an end to the Asian nation's economic resurrection.
Japanese stocks have shed 21% of their value over the last three weeks, beginning with a 7.3% plunge on May 23. A retreat of more than 20% is considered bear market territory.
Since then, the Nikkei has gone from the world's best performing stock market to the most volatile as investors question Japan's aggressive strategy to end 20 years of economic stagnation.
"People might start to think, 'Oh this [recovery] is going to collapse,' and they might say, 'Oh I can't buy things.'" Edwin Merner, president of Atlantic Investment Research in Tokyo, told The Washington Post. "It could have a big psychological impact."
A New Normal
Impacting Japanese equities today was a lowered global economic forecast from The World Bank.
In its semiannual Global Economic Prospects report, the multinational development agency trimmed it economic expansion outlook for 2013 to less than 2.2% from 2.4% as the world economy enters a period of a "new normal." Slower growth rates in emerging countries and subduing commodity prices are expected.
"Growth is not slower because of inadequate demand but rather because, in our view, the very strong growth we saw in the pre-crisis period was due to that bubble phenomenon." Andrew Burns, lead author of the report explained.
Related Articles and News:
- The Washington Post:
Japan's volatile Nikkei plummets 6.4 percent
- CNN Money:
Dow's worst losing streak of the year
Wall Street drops on worry about timing of stimulus cuts
- Wall Street Journal:
Another Streak Falls By The Wayside