Stocks ended a second week of losses on a down note Friday, reflecting growing worries that stocks are on the precipice of a pullback.
Concern about slowed growth worldwide, the coming end of a supportive Federal Reserve policy and the fear of a worsening euro-zone debt crisis are undermining the stock market's ability to maintain an upward direction.
This sentiment was present not just in stocks but also was reflected in a sharp drop in the euro. Stocks and the euro have been trading in a similar pattern for most of the week and particularly on Friday, when a late-morning drop in stocks coincided with a sharp fall in the euro.
Financial stocks took the biggest hit, with the S&P Financial Index (^GSPF - News) falling 1.5 percent.
Recent heavy selling in commodities has prompted several money managers to forecast a pullback by stocks, noting that much of the stock market's latest advance has been built on commodity-related stocks.
"I think this is the first thrust in what's likely to be a correction in the stock market," said James Dailey, a portfolio manager at TEAM Asset Strategy Fund in Harrisburg, Pennsylvania."But the epicenter of that correction is likely to be in what's already been correcting most severely, which is the commodity-related area.
The Fed's second round of quantitative easing has been credited for much of the strength in stocks and commodities since September 2010. The $600 billion bond-buying program is set to end in June.
"QE2 was perceived to be a big help from a stimulative standpoint, and markets have reacted very favorably to that," said Natalie Trunow, senior vice president and chief investment officer of equities at Calvert Investment Management Inc in Bethesda, Maryland, which manages about $14.8 billion.
"It is also apparent the Fed is unlikely to proceed with QE3, so as QE2 stops that signifies an effective tightening," she said.