Market Resumes Decline As Uncertainty Breeds Uncertainty

09/25/2014 5:30 pm EST

Focus: MARKETS

Jim Jubak

Founder and Editor, JubakPicks.com

The inability to point to a reason for today's market decline is worrying because it raises fears that maybe we're looking at one of those 10% corrections that happen "just because." But MoneyShow's Jim Jubak still thinks the longer-term trend is upwards.

There are days when uncertainty breeds more uncertainty in the financial markets. And this is one of those days.

Today's drop has wiped out all of yesterday's recovery that put an end to a streak of three down days. The speed of the reversal has unsettled the markets. And so has the absence of a clear catalyst for the drop.

Yes, the news out of European economies is bad with drop in the preliminary Purchasing Managers' Index for Germany and weak confidence numbers out of the Info Institute's survey pointing toward GDP growth of less than 1% from the EuroZone's best-performing economy.

And, yes, news out of Russia is unsettling with the Russian parliament apparently considering a measure that would allow the expropriation of foreign assets in retaliation for European and US sanctions.

And, yes, the level of violence in Syria and Iraq shows no signs of receding and we seem to be on a path to regional war.

But all that was true yesterday as well.

So investors and traders are left with conjecture. Maybe it's all Apple's (AAPL) fault—troubles with the iPhone 6 and the new OS 8 operating system have taken Apple shares down almost 3% today and that's certainly not a plus for the NASDAQ Composite Index. Maybe the rise in initial claims for unemployment to 293,000 for the week ended September 20 from the prior week's (revised) 281,000 raised worries about the strength of the US economy but that seems unlikely because of the relatively small size of the jump and the fact that economists surveyed by Briefing.com had projected an increase of 300,000 for the week.

An inability to point to a reason for the decline like this is worrying because it raises fears that maybe we're looking at one of those 10% corrections that happen “just because.” As I've pointed out, some sectors of the market are already near a 10% correction—the Russell 2000 Index of small-cap stocks is down almost 8% from July 3. And we're seeing the kind of narrowing of this rally that, along with a lack of leadership, frequently indicates a 10% or so pullback.

It doesn't help, either, that the Standard & Poor's 500 has once again moved down and then through support at its 50-day moving average near 1975 after moving back above that level at 1998. (Next big support is the 200-day moving average near 1900.)

In my view, part of this is the typical end of the quarter jitters caused by portfolio rebalancing, by profit taking (as managers protect gains if they have them), and by the paucity of news from companies that are getting ready to announce earnings beginning around October 8.

Does this preclude the possibility of a pullback? Not at all. In fact, I've been looking to raise a little cash in Jubak's Picks on the possibility that some of the high-multiple growth stocks that I've liked to own will pullback enough to give me an attractive opening.

But place that in the larger context: The trends that were so positive until the last week or so are still in place. The US economy is still growing strongly and a rising US dollar is still a magnet for overseas cash.

A pause? Certainly possible. But I think the longer-trend is still upwards.

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