Friday, January 22, 2010

What's Happening to the Stock Market?

I think it is interesting that the recent stock market downturn is being attributed to (take your pick): poor earnings reported for the first quarter? high unemployment? or President Obama’s harsh talk about Wall Street and the banks? I am sure there are more opinions, depending on what news or internet service you happen to listen to. I think the simple truth is that the market is scared! When the stock market doesn’t know what is happening, it gets scared. Short-term reports seem to bode ill for the economy. A longer view, however, reveals evidence to the contrary. Some reports say that early earnings reports are not so good. Today GE, which is considered to be a bellwether company in viewing the overall economy, was expected to post no more than 26 cents per share earnings for the fourth quarter, but instead reported 28 cents per share earnings! Yes, that is a big deal. Most companies have not reported yet and many won’t until sometime in February. As for the unemployment rate, it has been clear for more than six months that the unemployment rate would go to 10% plus and stay there, in all likelihood, for most of 2010. This is not news. The weekly jobless rate went up last week to over 460,000. The best measure of the unemployment rate, however, is the four-week average, which smoothes out the weekly fluctuations. That was 440,450. Illustrating its 19th straight drop, and the lowest four-week average since August 2008. Okay, then, some people think the downturn must be due to President Obama and his hard line talk. Yes, the administration is reeling from the election in Massachusetts this past week and the loss of the 60th Senate seat. But our President is a bright man and knows he has got to get something going on the economic and job fronts. You can’t blame him for tossing some blame at Wall Street, Big Banks and Washington itself since most of the country is disgusted with all three; or for talking about job creation and getting off of the health care legislation that ate up most of his first year in office and didn’t seem to sit well with the populace. What’s important is that he is not changing the way investors invest. My opinion? This is a stock market correction and I think it is but a short stop. The economy continues to improve though more slowly than most of us would like. Ed Mallon