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'Spoiled' market getting hit with 'one-two punch'

Traders work on the floor of the New York Stock Exchange.
Getty Images
Traders work on the floor of the New York Stock Exchange.

While it may not be quite time to turn out the lights, the high point of the stock market party appears to be over.

January's volatility underscores what is likely to become a more common theme as the year progresses: Though the longer-term positive story may remain, expect things to get a lot slower than they were in the past few years.

"This is the taper of the bull market run," said Michael Yoshikami, founder and CEO of Destination Wealth Management. "The bull run is still intact but it's not a stampede anymore. It will be a slower trot."

There are myriad explanations for the comparatively dismal early year performance, but they all tend to circle back to one place: The U.S. Federal Reserve and its global counterparts.

(Read more: No silver bullet for roaring emerging market beast)

Since the onset of the financial crisis in 2008, central banks around the world have been in extreme easing mode and none more so than the Fed. The central bank has expanded its balance sheet to $4.1 trillion through what's known in the common vernacular as "money printing," or creating funds that it uses each month to buy Treasurys and mortgage-backed securities.

That quantitative easing has been linked to rising stock prices but is being unwound to the point where many market participants expect it to be gone by the end of 2014. This week, the Fed's Open Market Committee decided to reduce the program by another $10 billion a month to $65 billion, from its original $85 billion.

"What comes with free money is that at some point it's got to stop," Nassim Taleb, author of "The Black Swan," told CNBC. Taleb said the current volatility is only a minor swing. "The minute the free money stops...then we'll talk about volatility."

While the Fed exit theoretically should have been priced into the market, it's become clear that the end of QE still could get messy.

(Read more: Outlook for company profits is getting pretty ugly)

"What you've got is a loss of capital or the potential for a lot less capital going into the international markets," said Susan Fulton, founder and principal at FBB Capital Markets. "We see it primarily as a reaction to the Fed moving to increase their withdrawal of purchases of Treasurys (which) impacts quite dramatically."

Indeed, after pouring money into equity funds over the past year, investors spent last week in retreat.

Equity funds lost $5.7 billion, with the SPDR S&P 500 and the iShares MSCI Emerging Markets exchange-traded funds surrendering $7.6 billion and $2.5 billion, respectively, according to a count from Thomson Reuters and Lipper.

(Read more: 4 signs of a potential ETF apocalypse now)

The reaction showed that investors are beginning to comes to grips with a changing market.

"We basically have been spoiled for all intents and purposes," said Richard Ross, global technical strategist at Auerbach Grayson.

"2013 was a straight shot with very little volatility, and the markets just moved steadily higher with very little corrective behavior. Now we're getting into a stage with more typical ebb and flow. It seems like higher volatility, but within a historical context it's not really heightened at all."

The analysis is mostly, though not completely, true.

There were a few periods of significant volatility in the market last year, none more than when outgoing Fed Chairman Ben Bernanke first raised the issue that the central bank would begin withdrawing—"tapering" became the market buzzword—its monthly stimulus.

While the narrative quickly took hold that tapering didn't mean tightening—that the Fed was still a long ways from implementing interest rate hikes that would slow the economy and markets—that, too, has become subject to some revision.

(Read more: For those waiting to buy the big dip, good luck)

The roiling of currency markets in places like Turkey and Argentina showed, as Fulton pointed out, that the Fed's move to decrease liquidity would have global ramifications.

Long-term adaptations to that changing world seemed poised to make 2014 an interesting year for investors.

"It's a little bit of a one-two punch here, but this is how markets move," Ross said. "You have to ask yourself, do you really think this is the end of the bull run? Is the primary trend over? I don't think so."

—By CNBC's Jeff Cox. Follow him on Twitter @JeffCoxCNBCcom.

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