Unimpressive Stock Action
Thursday, March 1st, 2007
By Michael Lombardi, MBA for Profit Confidential
This morning, Wall Street traders and brokers will wake up and say, “Goodbye February.” After seeing all of 2007′s stock gains wiped out this past Tuesday, people who make their living selling stocks are welcoming this first day of March with optimism.
It was Shakespeare that coined the famous phrase “beware the ides of March,” which specifically refers to March 15. Unfortunately, this economic poet doesn’t see March as being a good month for stocks. In fact, I wouldn’t be surprised to see another stock “surprise” on the downside before mid-month.
Frankly, I wasn’t impressed with the stock market’s rebound yesterday from Tuesday’s stock meltdown. I’m not even sure we can call it a rebound.
Historically, one-day stock market dives are followed by rallies that often last days. Sometimes they are called “bargain buying.” But technically speaking, the bigger the rebound after any one-day selloff, the less serious the technical damage of the selloff to the market.
But yesterday, we didn’t have a solid rebound… and that worries me. I’ve often written about the massive amount of liquidity in the economic system. That liquidity didn’t buy stocks yesterday and that’s a big negative sign for stock market.
There’s an estimated US$2.4 trillion stashed in money market funds — a new record. Unfortunately, that cash didn’t come out yesterday to buy stocks like it usually does after market meltdowns like the one we experienced Tuesday.
Several government reports are painting pictures of reduced investment by businesses. According to the U.S. Commerce Department, business investment in the U.S. in January 2007 fell at the fastest rate since January 2004.
So, we have loads of liquidity not chasing stocks, American businesses awash in cash they are not spending, and American consumers reducing their spending because they have either borrowed too much or are experiencing higher interest costs: All adding credence to my belief that stocks will not outperform the return of T-bills this year.
NEWSFLASH — U.S. new home sales dropped last month by the most in 13 years, according to the U.S. Commerce Department. January new home sales in the U.S. fell 16.6%. Toll Brothers, the big U.S. builder, also just reported that its fiscal first quarter profit plummeted 67%. Bad news for the U.S. housing and construction market continues. How can it not affect the U.S. economy?
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Tags: stock analysis, stock market, U.S. economy
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
