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Dow drops again: Bull market correction or the start of a new bear market?

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The Dow Jones Industrial Average DJIA dropped 316.99 points to 16,563.37 on Thursday and another 69.93 points to finish at 16,493.37 on Friday and for the end of a week that saw the DJIA over 17,000, reported today. This is the its worst showing since Feb. 3. It finished the month of July at 1.6% lower and its performance for the entire year of 2014 in the negative, reported The word coming from news outlets on Wall Street that the "correction" was caused by Argentina. But Wall Street is not crying for Argentina, rest assured.

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The DJIA also dropped on good news this week which saw second quarter GDP growth at 4 percent, positive news on jobless claims that showed layoffs have stopped and the Bureau of Labor Statistics jobs report showed 200,000 plus new jobs for the sixth month in a row. The economy added 209,000 jobs last month outside the farm sector, the Labor Department said Friday. Although hiring tapered off after a 298,000 gain in June.

The question being asked tonight on Wall Street, but not so much on Main Street is whether this a bull market correction or the beginnings of a new bear market.

The DJIA skidded in its biggest one-day drop in six months, as a combination of earnings, economic news and a default by Argentina triggered a broad selloff. There is also market nervousness about tomorrow's Bureau of Labor Statistics monthly jobs report. Damned if it does and damned if it doesn't. Of course investors want a strong jobs report as Fox Business News is projecting a consensus gain of 233,000 jobs and that the headline unemployment rate will hold steady at 6.1 percentage or lower. Should it exceed that expectation and the number is a crushing 300,000 jobs and the unemployment percentage dips below 6 percent, which could be viewed as bad news too.

Her is why in two words: The Fed.

The fear of a strong jobs report could mean that Quantitative Easing (QE) is coming to an abrupt end. What is QE? Why is it now referred to as QE3?

QE, but now QE3, is an unconventional monetary tool used by central banks to stimulate the economy. QE accomplishes two things: Injects more cash into banks, thus allowing them to lend more. And secondly, it lowers interest rates.

Should the fed "ease" the "QE", then that stimulation of the economy will come to an end and the theory goes, cause the stock market to fall quickly. Time will tell.


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