Exit, stage right: Greed. Enter, stage left: Fear.
The financial markets have taken a look at 2014 and aren't liking what they're seeing. "We're getting slapped around here a little bit," says Andrew Brooks, vice president and head of U.S. equity trading at Baltimore-based T. Rowe Price. "The world is a little nervous."
And how. The Dow Jones industrial average fell 326.05 points Monday, a 2.1% decline, bringing its 2014 loss to 7.3%.
Making the world nervous all year: jittery emerging markets. Turkey's stock market has plunged 13.3% in U.S. dollar terms this year and 29% the past three months, according to MSCI. Russia and South Africa's markets have both fallen more than 10% this year.
Investors aren't worried because they think Turkish and Russian investors will be selling their U.S. stocks. But stock investors do worry that growth in the emerging markets will slow, and that could hurt earnings for multinational consumer companies such as Coca-Cola and Procter & Gamble, which have gotten much of their growth from emerging markets.
Many investors recall the emerging meltdown of 1998, which shaved nearly 20% from the Dow in a few short weeks, as emerging markets saw their interest rates soar and their economies crumble.
And, of course, there's always more to worry about:
• The Federal Reserve. The Fed has been easing back on the monetary throttle, which had been open pretty much as wide as it could go. For much of last year, the Fed bought $85 billion in mortgage-backed securities and Treasuries in a bid to reduce long-term interest rates, particularly mortgage rates. Since December, however, the Fed has been slowing down its purchases by $10 billion a month, and some investors fear that the market might crumble without the Fed's market-friendly bond-buying program.
• Congress. The U.S. will hit its debt ceiling limit at the end of February, making the federal government unable to pay the bills that Congress has already authorized. If Congress doesn't agree to raise the debt ceiling, the nation could default on its debt. The last time Congress came close to default, Standard & Poor's downgraded the nation's credit rating, and the Dow fell 634.76 in a single day.
• Manufacturing. The Institute of Supply Management's factory index fell to 51.3, lower than most forecasts. Although a reading above 50 indicates that the manufacturing industry is growing, Monday's report was a surprise to most market participants.
Is all this fear warranted? Not really. "It doesn't feel good, but it's not uncommon for the market to consolidate and pull back after a year like 2013," Brooks says.
There are reasons to be cheerful, says Rich Weiss, senior portfolio manager at American Century. "Earnings are showing up pretty well," he says. According to S&P Capital IQ, 250 companies have reported earnings for the fourth quarter of 2014, and of those, 172 have beaten analyst estimates. Analysts expect fourth-quarter S&P 500 earnings growth to gain 7.3% year over year.
Forecasts have been problematic, though, coming in somewhat more negative than expected. "Guidance has been conservative," S&P's Brooks says. But companies that produce aggressively optimistic guidance get punished hard by the market when they disappoint.
Finally, bad news isn't bad news for all types of investments: 10-year Treasury yields have plunged on waves of pessimism, to 2.58% Monday from 3.03% at the end of 2013. Bond prices rise when rates fall, and the average U.S. Treasury bond fund gained 3.3%. The average stock fund lost 3%.