Stocks started mixed, but have drifted lower midday. Traders have put forward several reasons for the decline:
First, Goldman Sachs strategists are cautious on the markets.
Second, Atlanta Federal Reserve President Dennis Lockhart (a non-voting member of the Fed), noting the Fed's $10 billion taper that began in December, said "I would support similar tapering steps over the course of this year" if the economy continued to improve. This effectively gave the green light to the Fed continuing its taper program, despite the weakness in the Jobs report on Friday.
Third, pension funds taking profits on 2013 equity gains. The Great Rotation–out of stocks and into bonds–is not happening in 2014. Much was made of outflows from U.S. Treasury bond funds in mid-2013, and inflows into equity funds.
This trend does not seem to be playing out so far in 2014, with the down 1.6 percent, while long-term bond funds like the iShares 20 Year Treasury (TLT) is up 0.5 percent.
Many have suggested that pension funds are taking profits on their big equity gains in 2013 and using the money to rotate into longer-dated bonds, which now offer yields that are a bit closer to matching their obligations.
That makes some sense.
Meantime, individual sectors of the S&P are struggling for different reasons:
- Retail hurt by markdowns that are now extending into January;
- Energy hurt by low oil prices and a glut of natural gas (even with cold weather);
- Telecoms, home builders and other interest-rate sensitive stocks hurt by uncertainty about the direction of interest rates; and
- Emerging Markets and commodity stocks (steel, coal) hurt by weakness in China.
Despite the issues, I still see little sense of panic in the markets. The CBOE Volatility Index (VIX) dropped below 12 earlier today, the lowest level since August, although it has risen midday. Volume has been slightly above average on only one or two days last week.
—By CNBC's Bob Pisani