Volatile market crosses into a 'different world'

September market outlook

A market priced for perfection will start to wilt when investors realize things aren't particularly perfect.

Such is the lesson on Wall Street, which saw another huge selloff Tuesday that seemed to lack a significant catalyst.

Sure, there was the overnight economic news out of China, where a key manufacturing index fell to a three-year low. But everyone knew and expected that the reading wasn't going to be particularly inspiring.

A market looking to sell, however, is going to sell, and that's particularly true when stocks are at least fairly valued and in many cases overvalued. Prior to the August selloff, which saw major averages dip 6 percent and fall into correction territory, the equity indexes had been priced to reflect a belief that the U.S. economy would grow around 3 percent, the global economy also was fine and the Federal Reserve would find a way to remain accommodative.

With those and other assumptions challenged, the market finds itself teetering precariously between a fairly routine selloff in the context of a broader bull, and one looking to price in the vacillating probabilities of a global recession.