With the Dow Jones industrial average and Standard & Poor's 500 stock index coming off their best annual gains since the 1990s, stock investors hoping for a repeat performance have been sorely disappointed, as least through the first eight trading sessions of the new year.
On Monday, the Dow continued on its downward spiral, dipping 179 points, or 1.1%, to 16, 257.94. The blue-chip stock gauge has now suffered declines in six of eight trading sessions in 2014 and is down 1.9% for the year and from its New Year's eve record high of 16,576.66.
Here are five reasons why the nearly five-year-old bull market looks gassed:
1. Lousy start jolts confidence. January is supposed to be a seasonally sweet period for stocks, with fast starts and positive returns in January often setting a positive tone for the full year. Instead, the slow start has put a scare into investors, causing the sluggish start to morph into an even worse start as investors view it as a negative omen and as a reason to take profits or hold off on buying.
"When momentum from 2013 didn't carry into the first few trading days of the month, that made some traders nervous," says Ed Yardeni, chief investment strategist at Yardeni Research.
When stock prices stopped going up, money managers who no longer fear missing out on gains had less motivation to buy.
2. Stocks ain't cheap anymore. Goldman Sachs sent a chilling message to stock investors Monday, reminding them that after last year's nearly 30% gain, the market is no longer cheap and a screaming buy. The respected firm said the current valuation of the S&P 500 is "lofty by almost any measure."
Goldman said the the S&P 500's current price-to-earnings ratio of 15.9 times its projected earnings over the next four quarters is higher than its average over the past 5-, 10- and 35-year periods.
While Gol! dman's message wasn't new, it was a reminder that stocks would have to get a bigger boost from corporate earnings if investors are to push stock prices meaningfully higher in 2014.
"Unless investors are willing to pay overvalued prices for stocks, the market will have to grow more inline with corporate earnings trends," says Rod Smyth, chief investment strategist at Riverfront Investment Group.
3. Fed 'taper' plans still on track. The weak December jobs report doesn't seem to have changed Wall Street's thinking about the Federal Reserve's timetable to "taper," or dial back, its monthly bond purchases. The worry is the Fed will taper into a less-strong jobs market and economy than originally expected. Tapering when new jobs are coming in at a 200,000 per month clip is less worrisome than less Fed support with job growth weak.
"If you believed that we are in a sub-100,000 job-creation economy and the Fed is going to still taper, that would be a negative," says Smyth.
4. Retails sales far from rosy. Profit warnings from retailers in recent days, including athletic apparel maker Lululemon on Monday, has forced Wall Street to reappraise their robust economic outlook for 2014. Add in the jobs miss and "it's not quite as certain that the economy and earnings will be as strong" as Wall Street expects, says Yardeni.
5. Correction fears cause angst. It's been 830 days since the market's last 10% correction, versus a long-term average of one big dip every year, notes Alan Skrainka, chief investment officer at Cornerstone Wealth Management. "A correction," he says, "is possible any time for any reason."
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