The Dow Jones industrial average fell more
than 300 points on Thursday, erasing its gains for the year. The S&P
500 fell 2.7% last week, the biggest weekly decline since Jan. 2012. Now,
investors are trying to determine if the sell-off was overdone, or just the
beginning of a larger downturn.
It's been more than two years since the S&P 500 had a
correction, typically defined as a drop of 10% or more from the most recent
high. Despite last week's plunge, the S&P 500 is just 3.1% below its
all-time high from last month. With stocks still relatively expensive, many
investors have been waiting for a pullback to buy shares at more attractive
levels.
Investors certainly have a plenty to worry about. The
conflict in Gaza is unsettling and the showdown between Russia
and the West over Ukraine is intensifying. Argentina is another hot spot,
though investors seem confident that last week's default won't cause
major problems in other emerging markets. In addition to geopolitical turmoil,
investors are debating how the Federal Reserve may respond to the
recent spate of strong economic data.
U.S. gross domestic product increased 4% in the second
quarter as the job market continued to improve in July, though the pace
of hiring slowed a bit from June. The Fed is gradually winding down its stimulative
policies, and investors have recently become obsessed with trying to gauge when
the central bank will eventually hike interest rates. Most economists expect a
rate hike will occur in the spring or summer of 2015.
A big week for media
companies: The media sector will be in focus with quarterly reports
due from some of the biggest names in the entertainment industry. Time Warner,
the parent company of CNNMoney, rejected an $80 billion buyout offer from
Fox, the movie and television company run by Rupert Murdoch, in June. But it is
widely believed that Fox will eventually make another bid. Investors are eager
to hear what executives of both companies say about the possibility of a merger
when they take questions from analysts after their earnings reports.
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