Big day for the stock market yesterday: The Dow Jones Industrial Average jumped a remarkable 11% in a single day. Such a gain only happened one other time in the past 70 years, on October 13 of this ear.
So is this the bottom: should you start buying stocks again? Personally, I don’t think we have hit the ottom for the stock market. But that doesn’t mean it’s not time to start buying.
The stock market had a few things going for it yesterday. The Conference Board reported that onsumer confidence in the U.S. Is now at a 41-year low. A popular monthly report said that home prices in ajor American cities fell 16% in August from the year before. Both of the above can be construed as ottoms in terms of consumer sentiment and home prices, which is positive for the stock market.
And, in another move of sheer desperation, the government moved to buy the commercial paper issued by large corporations. General Electric and General Motors, which had trouble selling commercial paper in recent weeks to fund their operations, can now sell the paper to the government. (How come I can’t sell them any?)
Yes, interest rates will be cut today, as the Federal Reserve Open Market Committee concludes its two days of meetings. Analysts may be expecting more of a cut in interest rates than the Fed will actually deliver.
A one-day surge in the stock market does not mark the bottom of the bear market. If anything, sterday’s rally was long overdue.
The stock market had become severely oversold, and was due for a snap back rally. If the stock market didn’t rally yesterday (and I expect more strength over the next couple of days), October 2008 would have ended as the worst month in history for the market. I’d prefer to keep that statistic where it elongs — in an October in the 1930s.
As investors, our goal is to take advantage of opportunities as they arise. For investors who do not like shorting stocks, this means that buying stocks low and selling them high is the ultimate goal. If I had $10,000 available to me to invest, putting 15% of that into the market, just in case this is the bottom, would be a wise thing to do. Keeping the other 85% liquid, to buy at lower stock price levels that may present themselves in the future, is even a wiser thing to do.