Why the Market is a Mess

Well, the stock market had another bad day... the Dow Jones broke its previous low. However, don't worry about the Dow Jones, instead focus on the S&P 500. The Dow Jones is a broken index. The stocks in it are supposed to represent the US economy, but battered stocks like GM and Alcoa don't represent the type of economy we have right now. For instance, the United States is moving away from being a major car manufacturer. Therefore, a stock like GM shouldn't be in an index that is supposed to be representative of the major industries in the US economy.  The S&P 500 does a much better job of taking into account America's largest industries and thus is much more representative of the United States economy. Uninformed investors follow the Dow Jones while informed investors follow the S&P 500. It hasn't dipped below its lows yet; it's still testing them. 

So why is the market doing so badly right now? The market is fearful that recent government action won't effective enough to fix the problems in the economy. The biggest drag on the market today, as usual, was the banks, including an over 10 percent drop for Bank of America. Obama's mortgage plan received mixed reviews. Investors were pleased with the details, they just aren't sure how well it is going to work; hence, we saw a flat trading day. Before we can see any sustained rally, we need to see a planned solution for the financial sector. The major problem with the banks right now is that we don't know how much their toxic assets are worth. Tim Geithner is working on a plan to get this issue resolved. Once we have the details of his plan, I think we'll see a positive move in the market. Until there is a solution for the banks, don't expect any sustained rally - get used to the market testing the lows.

If you have investments at the moment, don't panic. Be patient. Government action will have an effect; we just have to wait until we have all the details on how the banking sector will be fixed. For now, don't be surprised when we keep having these negative moves in the market. It's just investors who are fearful of the government's action.