Stocks took another beating on Monday after confidence waned over the ability of Europe's finance ministers to find a solution to the ongoing Eurozone debt crisis. The Dow Jones Industrial was down 1.8%, or 209 points, to 11,300 at 2 p.m. ET, and the S&P 500 was down 1.8%, or 21 points, to 1,195.
Since the beginning of the summer, large market swings have become commonplace. In August, the average trading range on the Dow was more than 300 points, reports the AP.
But the summer's sell-off is much to be expected, according to Lance Roberts, CEO and chief economist at Streettalk Advisors.
He says all you have to do is look back to 2010 when the Federal Reserve's first round of quantitative easing ended with about a 20 percent drop in stocks. The same thing is happening today after the Fed took its foot off the pedal and concluded QE2. The debt-ceiling debate in Washington and the downgrade of the country's triple-A rating certainly also added to the drop, but those factors were not the impetus, according to Roberts.
So what's the problem?
"The problem is the goal of the Fed is to use quantitative easing to try to get the economy going. The problem is the economy part is not happening," Roberts tells The Daily Ticker's Aaron Task in the accompanying interview. "Consumers are over-leveraged. You are not going to get businesses to hire because their number one concern isn't the ability to get credit. Their concern is poor sales."
All this comes ahead of the Fed's two-day meeting this week where many suspect Chairman Ben Bernanke will announce more easing in one shape or another.
But Roberts thinks the Fed is out of bullets and has reached a point of diminishing returns when it comes to what it can do to help the economy. And to top that off, today's low interest rates are at what history has shown to be recession or depression-era levels, explains Roberts.
What does this mean for the markets?
Stocks have already slipped more than15% in recent months. Should the country dip back into a recession, Roberts predicts stocks will likely drop another 15% to 20% before rebounding.
- Dow Jones Industrial