Why the Dow Continues to Crash Today

After an incredible three-month run the Dow Jones Industrial Average (INDEX: ^DJI) has sharply reversed course. The index has put up a five-day downward spiral, erasing a large part of the year-to-date gains it fought so hard to earn. Here is a look at how the major indexes are doing right now:

Source: Yahoo! Finance.

What's causing the commotion?
It's the economy, stupid! The market's broad slide today is anchored to disappointing news about the US economy, which disappointingly dovetails well with Friday's less-than thrilling unemployment data. While Greek debt fears seemed to have subsided from their peak only a few months ago, the Eurozone is back to haunt us. The whole region is marred with debt and weak economic prospects, and now many are looking to Spain as the next ticking time bomb.

Of course we can't heap all of our woes on Europe, high gas prices and concerns about Iran continue to cause real worries for investors. Not only that but The Fed has indicated there would be no additional quantitative easing, news that hit the 2012 Dow Starlets Bank of America (NYSE: BAC) and JP Morgan (NYSE: JPM) particularly hard.

Despite the news though they are still the top two performing Dow stocks for the year, and continue to look cheap with regard to their price to book ratio. Taking another step back, the Dow is still up more than 4% for the year which isn't a bad pace.

An inflection point?
Alcoa (NYSE: AA) unofficially kicks off earnings season after the market closes today. They are the first Dow component to report, and investors are hoping they put up big numbers as a sign of better times ahead. Unfortunately, after nine quarters of earnings growth, FactSet is now projecting a decline in earnings growth. This makes sense given slowing China growth and a shaky Europe, but the silver lining is that muted expectations are easier to beat, so go get 'em Alcoa! Make us proud.

After Alcoa it's JP Morgan reporting on the 13^th, and then a flood on the 17^th with IBM (NYSE: IBM), Intel, Johnson & Johnson, and Coca-Cola all reporting. All four are long-term conviction stocks of mine, so I'll be watching very closely to see if they signal good things to come, or a continued slowdown.

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