Boy, the stock market sure sobered up in a hurry, didn't it?
All at once, after rallying relentlessly all year, stocks caught a case of the heebie-jeebies on Tuesday over a bunch of well-known risks to the global economic recovery and suffered their worst one-day selloff of 2012.
The Dow Jones Industrial Average fell about 203.66 points, or 1.6 percent, to 12759.16, its worst percentage loss since December 8 and its worst point loss since November 23. The more relevant S&P 500-stock index fell 1.5 percent to 1343.36, also its worst selloff of the year. And the tech-heavy Nasdaq Composite Index fell 1.4 percent to 2910.32.
Bank stocks were among the day's biggest losers. Morgan Stanley, which frequently last year was the market's whipping boy for euro-zone worries, took on that role again, falling 5 percent. Bank of America was down 3 percent.
Twenty-nine Dow stocks out of 30 ended the day lower (only Intel was higher). Even America's Sweetheart Stock, Apple, fell nearly 0.5 percent despite preparing to unveil the iPad 3 tomorrow.
The selling fever also grabbed ahold of commodities like crude oil, silver, copper and gold.
One investment that did notably well was the U.S. Treasury bond, which investors often run to as a safe haven. The yield on the benchmark 10-year Treasury note, which moves in the opposite direction of the bond's price, fell to 1.95 percent, near its lowest levels in decades.
The bond market has for weeks been signaling a weaker economic outlook than the stock market has. The bond market usually wins these arguments. Another early warning signal of a selloff: The economically sensitive Dow Jones Transportation Index has been falling for several weeks, even as the flashier Dow Industrials rallied.
The funny thing about today's bloodletting was that there was really no new "news" that made it happen. The driving theme was the slowly dawning realization that Greece is probably not going to convince the vast majority of its bondholders to take big losses and swap out their old bonds for new, cheaper debt. That means Greece might not get its next loan installment from its European paymasters.
That means we could soon get a Greek default that's just a tad on the messy side, like a Lindsay Lohan cue-card reading, with debt-insurance policies getting triggered and such, which might cause a few problems in global financial markets, possibly.
Meanwhile, a couple of days ago China cut its growth forecast for the year, and some U.S. economic reports have come in a little weaker than expected lately.
None of this is particularly new. But somebody in the thinly traded stock market -- and it's really just a handful of guys in a room full of robots these days -- decided that, having driven the Dow to its highest levels in four years, it might be a good idea, at least temporarily, to put down the beer funnel, brew a pot of coffee and at least try to sober up for the next couple of days. Lay low for a little while.
The Dow is still down less than 2 percent from the 13,000 mark we were all so giddy about just a week ago. It's still up nearly 20 percent from its low last October.
The mood could brighten dramatically as early as tomorrow morning, when payroll-management firm ADP is due to report its estimate of private payroll growth in February. Economists are hopping up and down on one leg with excitement about the number, thinking it's going to be big, as will be the government's job report on Friday. They think.
The trouble is that the market expects a strong jobs report already, so it might not react much if that expectation is met. In fact, some investors might start to fret that a healing job market means the Federal Reserve will take away its sweet, sweet monetary stimulus.
Whatever the reason, stocks have come a long way in a short time and could be due for a breather.
"Is this an opportunity to buy the dip, or the start of a bigger decline?" Peter Tchir, a trader at TF Market Advisors, wrote in an email. "I think we are at the start of decent move to the downside."
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