This may be the worst month for the markets in over a year. What's next?
This month saw record highs in the Dow Jones Industrial Average and the S&P 500. But, traders are worried.
Why is there such concern the same month as the markets were celebrating?
At the start of August, the Dow hit 15,658 and the S&P was above 1,700. Look at the returns since the start of 2013 and you’ll find the Dow and S&P up about 12%. Since then, the Dow is down 3.2% and the S&P 500 is off by 2% since then. That puts them on pace to being their worst month since May 2012.
(Read more: Dow posts 5-day losing streak to close near 15000)
Looming over the horizon is the potential of higher interest rates from here. The Federal Reserve Bank is expected to begin tapering its $85 billion per month bond buying policy known as “quantitative easing” as early as next month. That has led to a selloff in bonds and an increase in interest rates since May.
Competing theories say this may be good or bad for stocks. One has it that higher interest rates on bonds can hurt stocks because some lower-yielding stocks become unattractive compared to fixed income securities backed by the government. Alternatively, a selloff in bonds can lead to a rally in some stocks as bond investors search for other places to put the cash they got for their bonds.
Confused yet? So is the rest of the market.
To help, we’ve asked Talking Numbers contributor Enis Taner, Global Macro Editor at RiskReversal.com, to look at the fundamentals of the market index, the S&P 500. Fellow contributor Richard Ross, Global Technical Strategist at Auerbach Grayson, looks at the index’s charts.
There are some key technical levels that need to be watched for, according to Ross. And, Taner has some concerns about what’s coming next.
Watch the video above to hear Taner and Ross analyze what they think is in store for the market.