15 June, 2009

Markets sink Monday on Economics as Politics rears its head

Well, the week that wasn't, was it fact followed swiftly by heavily directed market action. The bears came out Monday and sent stocks lower from the start of trading as the Dow has been hovering another the minus 200 point total all afternoon.

Weak economic signs triggered some of the sell-off, which was broad enough to come to stocks and commodities. A Home Builder survey citing a drop in confidence was partly to blame, as was a New York survey of a decline in factory activity, according to the Wall St. Journal. Oil also slid, falling back towards $70/barrel after spiking to the mid $70s last week.

With option expiration occurring at the end of this week, traders are looking at where lock-ins are likely to be. Lock-ins being the certain levels stocks regularly fluctuate and float towards during options expiration week. While several economists and general "experts" are throwing around the term "green shoots" these days, the market's rally since the March lows proved that stocks at attractive valuations can recover to fair value in almost no time at all, given even glimmers of prospective recovery. Many are hopeful for economic recovery by the end of this year, however the still rising unemployment is tempering optimism and political fighting between Republicans and Democrats on everything including the most trivial of issues does not invoke the confidence Americans need in their government at a time of broken-down micro and macro-economics climates.

The President and his administration are trying to fight battles on several fronts and it appears to be taking its toll. The financial situation, the automotive situation, housing, health care and education reform, and the stimulus package are only some of the bigger areas where President Obama and his team are entrenched for change, and involved in business more heavily than any world leader would want to be. Could an agenda push too broad for its own good be responsible for the latest setbacks in the stock markets as businesses see future profitability diminished by stricter rules and regulation?

Most investors, economists and traders know significant overhaul is needed, though many don't accept several sweeping changes at once. The bankruptcy in the American auto sector, leading to government ownership and European partnership for 2 of the big 3 has turned that industry on its head. The financial fallout of the credit crisis is still very much at the top of the heap of troubles in the United States, with the Treasury and the President rolling out new reforms and a plan of action for the financial sector which will undoubtedly bring about increased regulation, not likely to appease profit seeking investors. The health care issue, the latest on the President's seemingly worldwide tour of change, may bring prosperity to some, in the field of electronic medical records and cost-saving technology, but is sure to complicate business for the private insurers and medical practitioners who in the future see a potential competitor in the public sector.

An agenda this broad and this ambitious is always met with an incredible number of challenges, but the time may not only be right, but may in fact be perfect, allowing America to somewhat reset itself stronger and leaner, more productive and more profitable in the years to come. As the economy recovers and some banks pay back TARP money and some infrastructure projects begin in the summer across America and some medical institutions start saving costs, the up swell of goodwill can spread across the country and public perception will lead to spending, leading to profitability, and leading to stock market advances.

Stocks are taking a breather today, after a 40% rally its almost expected, but looking to the future, the Investor should not be afraid of an administration taking drastic steps, but should embrace the goal that all investors share. Prosperity

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