Why Stocks Plunged Today (& What to Do Now)

A slowing global economy + more bad news from Greece = stock sell-off
That mathematical equation explains why stocks plunged yesterday. Are you getting that déjà vu all over again feeling? That's understandable, since last year investors confronted the eerily similar wall of worry that resulted in a 14 percent drop in the Dow from late April through the summer.

4 Reasons Stocks are Plunging:

1. Global growth is slowing: you can blame the Japanese earthquake and tsunami, the continued fear of a Greek default and the Chinese government's efforts to cool their local economy, but the bottom line: the globe is slowing down in 2011. In the US, first quarter GDP dropped to 1.8 percent from the fourth quarter's 3.1 percent pace.
2. US housing is officially in a double dip: Prices resumed their downward descent and with nearly 30 percent of residential homeowners under water, there's no relief in near-term
3. US Job Growth is Slowing: Lat month, the US economy added only 54,000 non-farm jobs, the fewest number of new jobs in eight months. Clearly, US employers got the message that the economy was slowing and they put the brakes on hiring. The paltry performance in May follows three months when job creation averaged 220,000 per month.
4. The Fed Might Not Bail Us Out This Time: Last year when the economy hit a "soft patch," the Federal Reserve came to the rescue with Quantitative Easing 2--the $600 billion bond-buying program that boosted pretty much every investment asset by year-end. So far, Fed Chairman Ben Bernanke has said that the central bank will be winding down the program at the end of June, as scheduled AND he has hinted that QE3 is not happening.

• DJIA 11,897: -178 points or 1.5 percent
• S&P 500 1265: -22 points or 1.7 percent
• NASDAQ 2631: -47 points or 1.7 percent
• US 10-Year Bond: 2.975 percent
• July Crude Oil $94.81: -4.56 or 4.6 percent

1. Take a deep breath
2. Do not make a trade
3. Repeat Step #1
4. Ask yourself: will the news impact the economy over the long term?
5. If economic impact is significant, review long-term investment allocation to determine if your portfolio can weather the changes
6. If allocation needs to shift, review your risk assessment and determine new allocation
7. If you plan to reallocate your portfolio, review all trades after markets close and submit orders before they open-you are making long-term changes to your portfolio, so don't get spooked by the daily market gyrations
8. If you have no idea how to answer questions 4, 5, 6 and 7 consider speaking to a financial advisor.
9. Remember my father's famous saying: "It's never as good or as bad as you think!" (Why listen to my dad? He was an options trader on the floor of the American Stock Exchange for three decades and has seen his share of crazy up and down days!)

Jill Schlesinger

Jill Schlesinger, CFP® is the Emmy-nominated business analyst for CBS News. She covers the economy, markets, investing and anything else with a dollar sign on TV, radio (including her nationally syndicated radio show), the web and her blog, "Jill on Money." Prior to her second career at CBS, Jill spent 14 years as the co-owner and chief investment officer for an independent investment advisory firm. She began her career as a self-employed options trader on the Commodities Exchange of New York, following her graduation from Brown University.

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