Anything Could Happen

There’s a lot of talk about the financial sector recently — and it’s not good. A lot of people are worried about more bank failures and even one or two failures of a major international name.

The stock market has been trading almost exclusively on the price of a barrel of oil, but is now also trading on any developments in financial service companies. Make no mistake about it; investment risk is very high right now. The credit crisis isn’t over and there is no magic fix to the situation.

I suppose that a bank failure could actually be a good thing for the marketplace. The system needs to correct itself from its excessive risk-taking over the last few years.

Inflation is another worry that isn’t going to go away for a while. Now, we do have time to let inflation calm itself down, but a lot of people contend that current Fed policy is just too accommodating for inflation to get itself under control. At least there’s no bubble in the marketplace to make things worse. If anything, weakness in the housing market is helping the inflation situation.

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The main stock market averages do not look very healthy in the current environment. The major indices are moving lower on high trading volume and this doesn’t bode well for the immediate term.

I get the distinct sense that anything could happen to the stock market in the near future. We could get a major turnaround in stock prices; we could get a lot more downside; or we might get nothing more than range-bound trading. Without a defined sense as to where stock prices might trend, it’s most certainly a difficult environment for investors. I think this situation will continue to be with us for quite some time.