A return to stock market volatility
The Dow Jones industrial index roiled in negative territory again Friday, falling more than 100 points in the final half hour, ending down 208 points.
Friday's stock market performance capped a negative and volatile week of trading, and local financial experts say there could be more to come.
"We're returning to the volatility we had in the 1990s," said Diane Swonk, chief economist at Chicago-based Mesirow Financial. "The reality of risk is finally returning to the market."
The S&P 500 lost 23.71, or 1.6 percent, to 1458.95 on Friday. The Dow Jones industrial average retreated 208.10, or 1.5 percent, to 13,265.47.
Some analysts credit the downward pressure on stocks to the slumping housing market, defaults in sub-prime lending and a looming credit crunch that could slow corporate takeovers.
Lisle-based Oberweis Asset Management head Jim Oberweis Jr., managing $2.6 billion in assets, insists the real cause is impossible to determine.
"Markets don't go straight up, and it's very normal to have periods of corrections," Oberweis said. "Housing and credit may have done it this time, but it could have been anything."
James Bianco, head of Barrington-based fixed-income research and brokerage firm Arbor Research & Trading Inc., said some of the slide is due to a misunderstanding.
The ABX Index, which measures the risk of owning bonds backed by home-loans to people with poor credit, is being misinterpreted, he said. The index is supposed to be insurance against sub-prime defaults, but many investors are taking its fall to mean the value of such risky loans is falling too.
"The ABX has been driving everything in the world for a month," Bianco said. "It's all about these arcane investment tools and people are getting it wrong."
Economist Swonk said growing U.S. and world economies, as well as better-than-expected corporate earnings, are supporting the markets.
"I think by the end of the year we will exceed previous highs," Swonk said. "But can I tell you when? No ... This is a time you have to be not so sensitive to daily market fluctuations."