As The Dow Breaks 15,000, Is It Too Late To Buy?
And some experts believe Wall Street is underestimating how much the sweeping federal spending cuts that kicked in March 1 are going to slow the economy, as government workers are furloughed and contractors lose business. If they're right, that could erode earnings.
Investors also have to keep an eye overseas. Half of revenues at big U.S. companies are abroad and some key economies are slowing or contracting. This can hit stocks hard, as General Electric shows.
Last month, when GE reported a 17 percent fall in revenue from Europe, its stock dropped 4 percent in a day. Many European countries are mired in recession, and the outlook has only gotten worse. Unemployment in the eurozone just rose to an all-time high of 12.1 percent.
China has put investors on edge, too. On April 15, news that it grew more slowly than expected in the first three month of this year helped push the Dow down 266 points, the biggest drop for the year.Nervous yet? One thing to keep in mind is that big, sustained drops in stocks â¿¿ ones that end bull markets â¿¿ are most often caused by U.S. recessions, and that doesn't appear likely soon. Four of the past five bull markets ended as investors dumped stocks before the start of a recession. They sold stocks two months before the start of the Great Recession in December 2007 and a year before the March 2001 recession. The U.S. economy has grown between 1 and 2.5 percent in the past three years. That's pitiful compared with the long-term average of 3 percent. Still, it's growth. â¿¿ LOW INTEREST RATES: If recessions cause stocks to plummet, what causes recessions? In most cases it's the Federal Reserve raising short-term interest rates because it fears high inflation from an overheated economy. Fed hikes were the trigger for three of the past four recessions.
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