In case you haven’t heard, today the stock market took what may be the largest drop of the year, and is giving me nightmares of 2009. Basically, what has happened recently is that all of the positive news of the past few months has cycled through the stock market and been accounted for. The knowledge that the US economy is growing slowly has been factored into stock prices. However, some of that positivity is now being reversed. For the last couple of months we have seen much news that Europe have stabilized, and that generally things aren’t getting worse than expected. However, Greece’s looming debt swap, and news that global economic growth has not met expectations have stocks down. Specifically, one of the most important developing economies, Brazil, experienced growth of 1.4% in the 4th quarter versus expected growth of 1.6%. This adds to the news that China has cut its growth forecast for 2012, meaning that two of the world’s largest developing economies, and two of the three largest developing members of the G20 are still struggling.
However, it is important to note that there is still some good news for the US. Our economy is still expanding, the housing market is stabilizing, and the services sector expanded by the fastest pace in a year in February, giving a silver lining to this cloud at the very least. Due to this, I do not believe that this negativity in the market will be more than a short term event, although the continuing worries over Greek debt will weigh on the markets until they are permanently resolved.