Why the Markets Got a Case of the Wobblies

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Wall Street may be sounding a collective "Are we there yet?" to Alan Greenspan. The NASDAQ tumbled to its low point for the year Monday, losing more than 5 percent of its value in a brisk sell-off that also took the Dow down more than 250 points before both markets recovered in late-afternoon trading — the Dow finishing down 84 points down and the Nasdaq shedding 26.2 points. While analysts struggled to pinpoint a precise reason for the market's stormy Monday, the specter of more interest-rate hikes was a recurring theme, particularly in light of record trade-deficit figures released last week that signaled the economy is still expanding at a pace that has Fed chairman Greenspan nervous. "The dominant view had been to expect a further one-quarter percent rate hike in June, but if the economy continues to show strength that may well turn into a half-point increase," says TIME Senior Business Writer Bernard Baumohl. "Even in increments, the rate increases eventually dim the outlook for profits, and that has an impact on the market. The Fed has been stepping more and more firmly on the brake to slow the economy, but investors are clearly uncertain as to whether the brakes have yet taken hold."

While volatility may be the order of the day until the market has a clearer idea of just how high the Fed plans to go at its June meeting, there may be a silver lining for investors in Greenspan's desire to get the job done quickly. "The need to ensure a smooth landing rather than bring the economy crashing to a halt means that the Fed will want to make any increase in June their last for the year," says Baumohl. "It wouldn’t be at all surprising if, once it absorbed that increase, the market shows a healthy rebound."