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What’s going on with the stock market?

Published: 2/6/14 @ 12:00


Associated Press

NEW YORK

It’s a skeptics’ market now. Just three weeks after stocks reached all-time highs, the market has turned volatile and investors have gone from cheerful to suspicious.

It isn’t a surprise to most money managers, who expected this year would be rougher after last year’s almost 30-percent surge.

No stock market can go straight up. But the fact that the volatility started so early caught some investors by surprise.

Even with major indexes down 5 percent or more, there is room for optimism.

There’s no sign the economy will backtrack into a stock-killing recession and any big stock-market drop is unlikely to last long.

So far this earnings season, 44 companies have cut their earnings forecasts for the year while 10 have raised their outlooks, according to data from FactSet, a higher ratio than the historic norm.

It’s not a good sign. Stock prices are derived from the earnings that a company generates, or will generate in the future.

Investors bid up stock prices in the last three months of the year in hopes that the improving economy would translate into higher company earnings. Corporate America has delivered on earnings for the most part.

But if companies continue to cut forecasts, it means stocks are too expensive and investors will have to re-evaluate.