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Heading into today's opening, many on Wall Street were hoping for the markets to snap back and rally vigorously—a day after the Dow Jones industrial average tumbled more than 214 points on worse-than-expected inflation news. Yesterday's drop represented the worst single-day loss for the Dow in more than three years.
But instead of using yesterday's dip as a buying opportunity, investors continue to be wary of equities. The Dow was pretty much flat in midday trading today.
Ever since the Federal Reserve Board voted to raise interest rates on May 10–but hinted that it may no longer need to hike rates because of reasonably benign inflation data–stocks have taken a tumble. The Dow, for instance, is off around 500 points from the high of 11,709 it hit during trading on May 10. The Nasdaq composite index and the S&P 500 have also lost significant ground since the Fed meeting.
To some, this is a natural pullback for equities, which have been in rally mode since the end of October 2002. In fact, the U.S. stock market has gone through one of the longest stretches in history without a 10 percent correction in equity prices.
But others think this could be the start of the cyclical downturn that equities usually go through in the second and third quarters of midterm election years. Historically, the middle six months of the second year of a presidential term are the worst for stocks.
Still others think the market's woes may have something to do with the lack of trust investors have in new Fed Chairman Ben Bernanke. He has learned the hard way that Wall Street clings to every word that comes out of the Fed chairman's mouth. And right now, stock traders don't know what to expect from Bernanke.
