Monday, August 17, 2009

Is the Stock Market Rally Over?

Here are a few reports from Reuters on the current state of the stock market. Here, Reuters reports that:

NEW YORK (Reuters) - Stocks suffered their worst loss in seven weeks on Monday as weak data from Japan and a disappointing outlook from retailer Lowe's Cos (LOW.N) dampened hopes about the economy's growth.

Japan's gross domestic product showed its economy pulled out of recession in the second quarter, but at a slower pace than expected, prompting a sell-off in major Asian markets that spilled over into Europe and North America.


The results amplified worries about weak consumer spending following last week's poor data on U.S. consumer sentiment and retail sales.
The health care sector managed to outperform most other economic sectors. Is the stock market rally of the past few months over? Will we see the Dow Jones Industrial Average go below 9,000 points again? Only time will tell. Its pretty clear that the primary reason for the decline is the fact that consumption seems to be on a consistent decline and shows no sign of recovering. The retail sector is struggling especially hard.

Here is another story from Reuters, published last week, that is of interest to anyone invested in the stock market:

NEW YORK (Reuters) - A massive rally in U.S. stocks since March has reawakened bullish spirits, but insiders are jumping out of the market in a sign the run up is getting stretched.

Company executives are selling stock at a rate not seen in two years after a near 50 percent rise in the S&P 500 from a March 9 low. That suggests directors and managers may think stock prices are nearing the top end of their range in the current economic climate.


For brokerage Jefferies & Co., a significant increase in insider selling transactions as well as a decrease in short interest across most sectors of the S&P 500 demonstrates the weathering of the bear market rally.


Since early March investors have piled back into the stock market in the hope of an economic recovery, bank sector stabilization and expectations many more will follow them.


"Insiders historically have a strong correlation on a macro level to buying and selling, said Silverman, who is based in Princeton, New Jersey. "There's a lot of negative signs right now coming from insiders."
It seems like investors should definitely consider the implications of these news stories. While the media and some financial institutions publicly declare that the recession is on its way out and a recovery is here, some major insiders are dumping stock. Who is going to be left holding the bag if the stock market takes a dive again?

Here is one final report, also from Reuters:

Of late there has been an influx of money, but it's not necessarily good news. Recent experience shows that the biggest influx of money comes at the peak, according to Birinyi Associates.

"It's somewhat of a reverse indicator," said Jeff Rubin, market strategist at Birinyi in Westport, Connecticut. "You do want money going in, but you don't want this tremendous shift."

While it hasn't been a tidal wave, money is returning to stocks, according to data from the Investment Company Institute. For the week ended August 5, equity funds saw an estimated inflow of $5.5 billion, compared with an inflow of $3.4 billion the previous week.

In the short term, such flows can bolster heady gains, but larger bouts of optimism are often a sign markets are about to turn.

So there you have it. Quite a negative picture from Reuters on the future of the stock market, at least in the short-term. It seems as if we may have reached another turning point in this prolonged recession the world is experiencing.

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