Two hours into trading, Bank of America (NYSE: BAC ) is down 0.31% for the day but up 5.11% for the week. The rest of the Big Four banks look set to finish in positive territory as well, unless today's so far gentle correction turns into a rout.
What comes down, must go up, and down
It's been an interesting two weeks. The Federal Reserve's announcement last Wednesday laying out a potential timetable to wind down Quantitative Easing threw markets around the world into an uproar. But after a severe two day drop, markets rebounded strongly, until today.
And in the same way that central-bank actions here rippled out to impact the rest of the globe, central-bank actions in China rippled out to affect other markets, including America's.
After a crackdown on China's shadow-banking sector, fears of a credit crunch in the world's second largest economy put downward pressure on markets everywhere. The People's Bank of China first responded by issuing a rather hawkish statement, saying it was content with the amount of liquidity in the economy. But quickly changing its mind, the PBoC issued a second statement assuring the markets that it would backstop any Chinese banks experiencing cash shortfalls.
Foolish bottom line
Why the market correction today? Possibly a perceived weakness in Europe as well as a rise in Treasury yields. Yields had been on the rise anyway, but Fed chairman Ben Bernanke's statement last week made them rise even higher. The bond market is a whole other animal from the stock market, but suffice it to say that it's been in a tizzy the last two weeks as well.
After last Thursday and Friday's two-day stock market plummet, this week's steady march upwards came as a surprise. It seemed too good to be true, that investors had adjusted to the potential end of quantitative easing so quickly, and maybe that's the case. The best we can hope for here is that this is indeed a gentle correction -- yet another reaction to the series of reactions and overreactions we've been witnessing.
The stock market is volatile right now and will remain volatile. It was volatile before Bernanke's statement. All the more reason to take a long-term view of investing, which is what we counsel here at The Motley Fool. Tune out market noise and tune into the fundamentals of the companies you're invested in. So long as they seem solid -- and B of A investors know their favorite bank has come a long way since the financial crisis -- there's no reason to be thrown into a tizzy. And leave the daily ticker checking to the day traders: Your portfolio will thank you, even if your broker won't.
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