— Ahead of the Street Column, by Mitchell Clark, B. Comm.
As soon as the consumer prices number came out, gold shot up, even though most of the increase in inflation was due to a spike in gasoline prices. This is the kind of market it is for stocks — reactionary. It’s definitely a traders’ market out there and it will likely stay this way for the rest of the year. Choppy trading action is the name of the game, as there just isn’t enough information for the market to determine a new trend.
Stock market sentiment is improving right now, but it always does at the beginning of an earnings season. In a market craving any corporate news, investors are willing to give companies a lot of leeway in their operating results.
Goldman Sachs set a good tone for the market, but we have to remember that all the big Wall Street banks got a lot of “free” money from the government. If someone gave you billions of dollars to help you out, you’d be making some money off that as well. It will be very interesting to see what the other banks say about the state of the financial industry.
As much as it pains most people to think of the Wall Street bailout, the stock market can’t really move forward in a sustainable new upward trend without revitalized health in the financial sector. The banks and the brokers are just too important an industry to the rest of the economy. Credit is still tight for small businesses and, without wealthy bankers on Wall Street, the Main Street economy will stagnate. That’s just the way it is.
I describe the stock market right now as being very moody. It’s reacting up or down very decisively to positive or negative news. One week sentiment is bad, the next it’s much improved. This churning or unrest among market participants is a signal that a new breakout is possible. If the corporate news stays good, I think it’s likely that we’ll get another solid bounce to the upside over the next month. When second-quarter earnings season is over, the market will go back to relying on economic data and this could be the catalyst for another retrenchment.
We’re in a market where anything is possible. Investors want to see some good news from companies and they’re willing to be buyers if expectations are beaten. Still, the current environment remains one for traders, not investors. One week’s bounce to the upside can easily be next week’s sell-off.