FORTUNE -- The recent stock selloff has people once again freaked out about the market. But perhaps it shouldn't.
CNNMoney's Fear & Greed Index is now again in extreme fear territory. A month ago, the gauge of investor sentiment was stuck on greed.
The conventional wisdom is that the selloff will be short-lived. The economy is strong. The stock market, which was up more than 30% as measured by the S&P 500 last year, had gotten a little ahead of itself. Investors were looking to take profits. So when troubles in emerging markets came along, that lit a spark over what was already dry wood.
But take a closer look, and that reasoning doesn't really match up with the recent sell off. Ghe Dow Jones Industrial Average (INDU) is down nearly 7% for the year. That's more than the S&P 500 (SPX) and the Nasdaq Composite (COMP), which are down 5% and 3.5%, respectively.
The Dow is made up of larger companies -- the types of corporations that are most tied to the strength of the U.S. economy. The Nasdaq is heavily weighted in technology companies, which have largely avoided the recent selloff. That suggests that the selloff is being driven by worries about the strength of the U.S. economy, not the level of stock prices.
Of course, many of those large companies derive a large portion of their revenues from overseas. So investors could be selling those stocks because they are worried about a slowdown in China or Turkey. But Jim Paulsen, an equity strategist at Wells Capital, doesn't buy it. He says we have known about problems in emerging markets for a while, at least since late last summer.
Instead, he says, what has really spooked investors is corporate earnings, which are slowing. What's more, a number of companies have indicated that they think profits could be soft for the rest of the year. "It's about growth," says Paulsen.
Berkshire Hathaway, for instance, is generally seen as pure of a play on the U.S. economy as you can get. And shares of Berkshire (BRKA) have fallen 7.4%, a larger dip than the rest of the market. What's more, Dow Jones' index of U.S. retailers is down 8.4%, which is also a greater decrease than the rest of the market, and, again, a group of stocks that tend to be tied to the U.S. economy.
Here's something else: Coming into the year, both the S&P 500 and the Nasdaq had higher price-to-earnings ratios, 17 and 30, respectively than the Dow, which was at 16. When investors sell stocks because they are worried about prices, they typically sell stocks with the highest prices (relative to their earnings). But that doesn't seem to be what's going on here. High-fliers like Facebook (FB) and Netflix (NFLX) have continued to soar.
All of this should make you less worried that the recent stock market selloff will gain steam. What you should be worried about is the economy and your job. At least that's what the market seems to think.
It is understandable that some are comparing recent emerging markets troubles to the Asian financial crisis of 1997. But while it isn't the best time for emerging markets, it is hardly the end of days.Jan 28, 2014 12:16 PM ET
The ones that matter most to the market may not be as high as everyone assumes.
FORTUNE -- Over the past year or so, corporate profits have been a growing concern for investors. They're too good.
Margins, the percentage of each sale that ends up as profit, as measured by GDP, have never been this high. They hit a record near the beginning of 2011 and have continued to march up. At MOREStephen Gandel, senior editor - Sep 26, 2013 10:11 AM ET
The author of the new Dao of Capital -- a hedge fund manager and former top trader for Nassim Taleb -- sees a 40% drop looming in the S&P 500.
By Scott Cendrowski, writer
FORTUNE -- "You know what I mean?" Mark Spitznagel has just finished explaining one of the paradoxes of today's business world. Spitznagel, 42, is the hedge fund manager who returned more than 100% during 2008. He was Black Swan MORESep 25, 2013 12:54 PM ET
Dow Jones says a goal of the 30-stock index is to capture the pulse of the broader economy. So why replace a rebounding Bank of America with Goldman Sachs?
FORTUNE – In the biggest change of the 30-stock index in nearly a decade, three companies will be replaced on the Dow Jones Industrial Average. Alcoa, Bank of America, and Hewlett-Packard are out, Nike, Goldman Sachs, and Visa (V) are in.
The shake-up MORENin-Hai Tseng, Writer - Sep 10, 2013 1:27 PM ET
Despite slower earnings growth expected overall this earnings season, America's big banks aren't sweating it.
FORTUNE – U.S. stocks rose Tuesday as earnings started on a positive note with Alcoa (AA) beating Wall Street expectations. Though some still consider the industrial giant a bellwether for earnings across corporate America, it's unlikely to say much about how other companies will have fared during the three months ending in June.
Analysts expect to see MORENin-Hai Tseng, Writer - Jul 10, 2013 5:00 AM ET
Even if the the Fed chief's positive outlook for GDP pans out, it could still be bad for your 401(k).
FORTUNE -- Following the two-day 550 point decline in the Dow Jones industrial average last week, a number of commentators recommended stock investors follow Churchill: Keep calm and carry on.
They argue that Ben Bernanke is pulling back the Federal Reserve's stimulus for a reason investors should like: The economy is improving. MOREStephen Gandel, senior editor - Jun 24, 2013 5:00 AM ET
All of the market dislocations -- Treasuries, commodities, etc. -- were percolating underneath the surface well before this frenzy.
By Keith McCullough, Hedgeye
FORTUNE -- What an epic 48 hours it has been. Just. Total. Chaos.
We are officially going over the waterfall now. Boats are in midair. People are hanging on trees. Everybody is scrambling, trying to explain what they missed. Trying to make sense out of it all. Hat tip to MOREJun 21, 2013 10:00 AM ET
On Thursday, the S&P 500 hit an all-time high. Stocks will have to leapfrog a drop in earnings for the index to climb even higher.Stephen Gandel, senior editor - Mar 29, 2013 12:55 PM ET
Stocks have added $11.3 trillion in value, or 138%, since the market bottomed four years ago. That's an annual compounded return of more than 26%.
FORTUNE -- It's so much fun to own stocks these days, with the Dow Industrials and Wilshire 5000 index setting one new high after another, and the Standard & Poor's 500 within 1% of doing the same. Watching the value of your portfolio rise is such MOREAllan Sloan, senior editor-at-large - Mar 8, 2013 9:03 AM ET
|The medical marijuana ad that never aired, despite contrary media headlines|
|2 million students missing out on college aid|
|China to fight pollution with drones|
|GM raising Corvette prices|
|Boeing reports wing cracks on Dreamliners|