The big drop in stocks today should be no surprise. The market was up more than 90% since Mar. 2009, representing one of the greatest equity price rebounds in economic history. The rally appeared to be far ahead of the economic reality, especially regarding employment.
The triggers for today's decline are the sovereign debt crisis in Europe, the employment situation in the US, the civil wars in Libya and the Ivory Coast, and the surprise negative trade deficit in China.
At least with the first three above, there is some credible news. For the case in China, it is not clear what has caused the radical trade-deficit swing. Some believe the dramatic change links to the Chinese New Year holiday and manufacturing plant shutdowns. Essentially, exports from China shrank a huge amount for Feb.
I think investors are justified in selling stocks. There has been some pick-up in the US economy. However, quantitative easing might be the greatest driver rather than organic economic activity.
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