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Investing Specialists

Market Looks for Excuse to End the Party

The market may find reasons to stall in the short term, but a strong economy and powerful corporate earnings cycle will be key drivers in the long run.

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The U.S. markets this week remained firmly in the clutches of international developments. Stocks rallied sharply when it appeared the Greek debt situation was reaching a resolution and sank again on Friday when China continued to tighten the reins on aggressive bank lending.

Contributing to market weakness on Friday was the announcement that eurozone growth in the fourth quarter was a meager 0.1%, less than the anticipated growth of 0.3%. Recall that the U.S. economy grew at 5.7% over that same time frame. Whether these overseas developments were a direct cause of the U.S. market volatility or just a coincidence is yet to be determined.

There are other reasons markets might be sloppy. Many U.S. equity markets were up over 70% from their March lows, Washington appears in disarray, some economists are openly worrying about life after stimulus, and a very jolly earnings season is winding down. It wouldn't take much of an additional excuse to shut down the stock market's party, at least temporarily.

Robert Johnson, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.