Lasty week’s 5% loss for the S&P 500 almost fully reversed the gain of the prior week. Over the preceding nine weeks stocks rose steadily as economic data proved stronger than expected. As last week’s performance attests, market participants’ greater expectations now leave room for disappointment and the return of volatility.
Around the turning points during the healing is typically uneven – some parts of the economy begin to show signs of improvement while others are still worsening. The early signs of improvement signaling the bottom is near are usually welcomed with a rally in stocks and corporate bonds despite the mixed economic data. The rally often ends when investors get impatient waiting for improvement to show up in all areas. As expectations get too great some of the data is bound to disappoint.
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