Why the market is adjusting stock prices

A trader on the floor of the New York Stock Exchange, January 8, 2015.
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A trader on the floor of the New York Stock Exchange, January 8, 2015.

Another down day, saved only by a late day rally on vague hopes that China may act to stabilize its currency.

Short term, there are two things that are moving the markets: 1) oil, and 2) fears of a currency war.

The currency war thing is very real. Notice that China's Shanghai Index was down more than 6 percent overnight. You'd think Europe and the U.S. would open down, but no. The Chinese raised the value of the yuan, and our markets were calm. That's because currency wars are a major concern.

Aside from these two primary drivers ... both of which reflect heightened global risk, the market is also evaluating what the proper price for stocks should be in general. You'll notice no one is picking on a particular sector since the start of the year: energy, materials, financials, health care, technology and industrials are all down 7 to 9 percent.

There is a general de-grossing going on. Traders are taking down positions because, in addition to oil and currency risks, they see:

1) the beginning of Fed tightening,
2) flat to modestly up corporate earnings,
3) strong new jobs but at comparatively low wages,
4) low inflation that shows no signs of rising, and...
5) an election year with highly unpredictable outcome and some leading candidates who are out of the mainstream and the outcome of Trump who could bring a global trade war.

One trader friend of mine, a very astute observer of the markets, messaged me this morning: "Not helpful to think of bulls and bears, this is Mr. Market working through a major reevaluation of the proper equity and bond prices."

  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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