Investors increasingly spoiled with stocks that never seem to fall are now wondering how much they can drop. Stocks are off to a rocky start this year as investors stand ready to push the sell button with even a minor whiff of trouble. The latest worry came Thursday on indications China's engine of growth is stalling. That, along with U.S. profit reports that are just so-so, was enough to scare investors Thursday and knock the Dow Jones industrial average down 176 points to 16,197. It's much too early to pronounce the market is in trouble, but investors are fully aware the market hasn't had a "healthy correction" of 10% or more since June 2012 , says Chris Johnson of JK Investment Group . "When everyone has been bullish, it's time to sit on the sidelines a little," he says. Investors are getting nervous because they see: • Troubles in emerging markets. Growth in China and India had been a bright spot when the U.S. was struggling. But a report from HSBC and Markit Economics indicated that China's factory production could shrink in January. Investors have been conditioned in recent years to be nervous of global slowdowns that seem isolated at first, says Joe Saluzzi of Themis Trading. "We're not sure if this is the big one," Saluzzi says. • Lackluster earnings. Investors bought up stocks last year, in part, on the idea corporate earnings would be stellar in 2014. While earnings are coming in ahead of views, they're not beating by as much as usual. So far, 65% of the 102 companies in the S&P 500 to report have surpassed expectations, falling short of the roughly 70% that usually do, says S&P Capital IQ. • Full valuations after a powerful market run. Given the market's run last year, investors are no longer feeling like they have the same margin of safety that they did. The S&P 500 is currently trading for 17 times its earnings over the past 12 months. That's below the 18.7 average since 1988, but well above the 15 times earnings a year ago. Investors, who have been looking for an excuse to sell and lock in profits, will jump if it looks like the market is headed for a pullback, Saluzzi says. "The bulls are all in a room looking at the exit door. They don't want to be the last one out," he says.
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