Wednesday, January 28, 2009

Don't Jump Into Every Market Ripple

So today we had a nice rally of 200 points in the Dow Jones, thanks to a strong performance by bank stocks. But that doesn't mean anything. Tomorrow we could see a 300 point drop because someone reported bad earnings. The bank stocks got a lift from news that the Fed will keep rates at almost 0% all year long and the Obama Administration is moving quickly to buy up more toxic assets from banks. Additionally, House Democrats leaders announced today that the Stimulus Bill is expected to pass the House. 

While this is all good news for banks, don't be fooled by this market ripple. Today Starbucks and others announced even more layoffs. As companies continue to release earnings, they keep announcing massive layoffs to help cut costs. Don't overlook this. As more layoffs occur, companies based on consumer spending will continue to see their earnings deteriorate. The job losses from this week alone are really adding up. 

Lastly, the Stimulus Bill is supposed to pass the House, but that does not mean it will pass the Senate. Democrats do not have enough votes to bypass a filibuster, and right now Republicans seem to hold strong opinions against the excessive spending of the bill and a lack of tax cuts. The market is expecting the bill to pass, but it will probably find resistance in the Senate. And if it doesn't pass the Senate, do not expect the market to take it well. Having said that, I don't think the bill will never pass, I just don't think it will pass right away. Republicans and Democrats both agree that some kind of stimulus package needs to be passed, but not on how it should take shape. And I have faith that President Obama will be able to stretch across the aisle and bring both sides together. If the bill doesn't pass the first time, it will present a great buying opportunity as the market will likely push down prices.  

Keep following how strong Senate Republican opposition is to the bill is so you can predict if the bill will get passed or not. And amongst all the news of stimulus and banks, do not lose sight of unemployment.

No comments:

Post a Comment