Where is the Stock Market Headed?
04/22/08 Categories: Economy
In an nation that is reporting
contradiction after contradiction, what are we supposed to think
about the economy. It is apparent that there has been a downturn.
The real questions are: Are we in a recession? Are we going into
recession? or Are we finishing the recession? The very problem with
asking these questions is that we don't know we've been in a
recession until after it happens. The economic data is backward
looking, thus we can't conclude on recession or not right now. A
recession is defined as two consecutive quarters of declining GDP.
With a decline in the fourth quarter 2007 GDP, if we report the
first quarter 2008 at a decline we have a recession. But where do
we stand now?
Many reports come out and say that the economy looks gloomy. Businesses report that earnings are down and morale is low. Consumer confidence is low as well. Because the credit market is tight, businesses are not borrowing as much to invest, expand, or fund new projects. This all affects the bottom line. With that said, times are not good right now. There's a cliche for that, "We can only go up from here." However, it is hard to call an actual bottom on the market, so we don't know for sure if it will go lower. One thing we do know is that the market will go up from here in the not-so-distant future. I have heard many experts including Bob Doll of BlackRock Asset Management (BLK) say that we have seen a bottoming process and that the worst is behind us.
I believe there are some stocks that have more to fall, but overall I think we have come to a substantial bottom. Companies that have not yet been affected by the credit and consumer problems may experience some spillover in the next quarter or two. Also, be careful of companies that have high P/Es, because once their EPS and growth rates take a hit, that stock could take a tumble down a high mountain. Something that seems to be a trend during recessions (especially ones sparked by financial trouble), is that the Financials sector seems to be the first to fall, the first to bottom, and the first to recover.
Be careful timing the market, and it's never a bad idea to sit on some cash if you are uncertain. Remember, all things held constant, the market will go up over time.
Many reports come out and say that the economy looks gloomy. Businesses report that earnings are down and morale is low. Consumer confidence is low as well. Because the credit market is tight, businesses are not borrowing as much to invest, expand, or fund new projects. This all affects the bottom line. With that said, times are not good right now. There's a cliche for that, "We can only go up from here." However, it is hard to call an actual bottom on the market, so we don't know for sure if it will go lower. One thing we do know is that the market will go up from here in the not-so-distant future. I have heard many experts including Bob Doll of BlackRock Asset Management (BLK) say that we have seen a bottoming process and that the worst is behind us.
I believe there are some stocks that have more to fall, but overall I think we have come to a substantial bottom. Companies that have not yet been affected by the credit and consumer problems may experience some spillover in the next quarter or two. Also, be careful of companies that have high P/Es, because once their EPS and growth rates take a hit, that stock could take a tumble down a high mountain. Something that seems to be a trend during recessions (especially ones sparked by financial trouble), is that the Financials sector seems to be the first to fall, the first to bottom, and the first to recover.
Be careful timing the market, and it's never a bad idea to sit on some cash if you are uncertain. Remember, all things held constant, the market will go up over time.
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