Why has the stock market gone down recently?

As the other guy said, it's mainly a problem in Europe. Basically, Greece economy is about to collapse and declare bankruptcy. Several governments have money to lend it, but Iceland wants collateral, which Greece can't afford. So apparently someone's making a deal that other countries would pay Greece's collateral. If the deal doesn't go through, and Greece declare bankruptcy, or its parliament can't agree on repayment plan for its debt by cutting even MORE spending (such as pensions, etc.) (which the creditors insist on, to make sure Greece CAN repay the debt in the future) then Greece will fall, and other countries on the brink, such as Italy, Portugal, and Spain, will likely go as well, and that'll pretty much mess up the European Union, and affect a MAJOR piece of world economy.

That is called uncertainty, and that is risk, which affects EVERYTHING, such as travel, import export, and so on, even if it is on the other side of the ocean.

Right now the market is split 50/50 between bears and bulls. 50% of the people out there think the markets are oversold and now is the time to buy. The other 50% think the recent declines are just the first part of a bear market (ie. we still have another 20%, 40% or even 60% down to go).

The reason everyone is so split is because no one right now knows what the state of the global economy is. Corporations seem to be doing 'ok', but they aren't hiring. Europe is on the brink of financial collapse (but some would say the politicians and bankers will find a way to save it). Some are saying things could get far worse than in 2008, others are saying this is NOT a 2008 scenario. Truth is, no one knows.

part of the problem is that no one knows what the banks balance sheets around the world are. The banks have kept them hidden from public view since 2008. So they might have trillions of debt (in which case they are f8cked) or they might only have a few billion in debt (in which case they are in good shape).

Point is, no one knows. If Greece collapses and causes Spain, Ireland, Italy and Portugal to collapse, then the markets could easily drop 20% in a single day at some point. Banks would end up going bankrupt all around the world.

If anyone could tell you with certainty which was the market was going, then the market wouldn't be swinging up 5% one day and then down 5% the next.

This is a VERY risky time to be in the market. It's safe to say at some point in the near future the market will either rally very hard (up10-15% in a couple days) or it will crash really hard (down 10-15% in a couple days).

it all depends on things that have nothing to do with the fundementals of the various stocks themselves. It's all macro variables like sovereign debt and bank debt that is still in the system and which know one knows the full extent of.

Personally, I think your dad is taking a huge gamble right now. While the market is technically cheap, it can still get much cheaper.

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Regards

I like to look at the stock market from a statistics point of view. I have never had any formal training in statistics, so people will be able to find errors in the way I do things, but even with the errors, this works for me.

Look at a 2 year chart of either the DJIA or the S&P 500. This is what you will find:

On 7-7-10 the market went up significantly. The entire move took about 3 weeks. (I try to focus on the major moves.)

9-1-10 major move up.

12-1-10 major move up.

3-16-11 major move up.

4-20-11 major move up.

6-28-11 major move up.

8-23-11 major move up considering the poor market sentiment.

Each move is amost exaxtly 3 months apart. The move in April was a bonus and the move in August was expected in September. It only missed by a couple weeks. The next imprtant thing to notice is that 3 weeks before each of these moves, almost to the day, is a major decline in the market. In my opinion, the market is too rhythmic to blame moves on events. Events that are bad for the economy don't happen just once every 3 months.

With that being said, I am looking for another major move up to begin around December 1. This would fall in line with the "Santa Clause rally". Of course, that also means I am looking for a major move down in the first couple weeks of November. Of course, you can turn that around. Expect a major move up about 3 weeks after each significant decline.