What the Stock Market Needs Now
Thursday, October 16th, 2008
By Mitchell Clark, B.Comm. for Profit Confidential
What we need now is a period of stabilization and consolidation in capital markets, so we can reflect on what’s happening in the economy. We also need third-quarter earnings season, so we can get the latest view from corporations.
Some companies have already reported their third-quarter earnings and the numbers weren’t half bad. Johnson & Johnson beat Street expectations and Coca-Cola posted solid numbers. What’s likely, however, is that most companies will report slowing business conditions and revised outlooks for the future.
I think it’s fair to conclude that investment risk in equities remains extremely high. The bloodletting isn’t over yet and the stock market will increasingly turn to economic data for direction. Everyone expects these numbers to reflect a real slowdown.
One of the main things a financial crisis does of course is erode confidence in traded securities. This, in turn, erodes confidence in consumer spending and people begin to hold back on purchases. Naturally, this has a cascading effect throughout the economy and we’re seeing this now with the latest numbers on retail sales and wholesale prices.
The only short-term benefit in our current situation is an easing of inflation expectations, which helps the Federal Reserve’s cause. Policy makers are still running out of options here and, at the end of the day, they will have to let the economy and recession unfold on their own.
So, over the next several quarters, it’s likely to be tough times on Wall Street and most certainly tough times on Main Street. Confidence among investors and spenders is still very shaky and, until this changes, the economy isn’t going to get better.
Confidence is like most things in life, it takes a lot of time to build it up, and it can come crashing down very quickly. Time is the only solution to the confidence situation.
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Tags: financial crisis, stock market
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Mitchell is a Senior Editor at Lombardi Financial specializing in small-cap stocks. He’s the editor of a variety of popular Lombardi Financial newsletters, such as Penny Stock Reporter, Micro-Cap Stocks, and Monster Profits. Mitchell, who has been with Lombardi Financial for thirteen years, won the Jack Madden Prize in economic history and is a long-time student of equity markets. Prior to joining Lombardi, Mitchell was as a stock broker for a large investment bank. While Mitchell is not working he enjoys fly fishing, motorcycling and tending to his hobby farm.
