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This whole month has been little more than a bloodbath on the stock market. October 2008 is set to be one of the worst months in the history of the stock market, even with today’s remarkable rally (the Dow climbed 889 points). But what was the driving force behind today’s huge rally?

Valuations.

Finally, investors are being lured by cheap valuations. Great bargains are out there, waiting to be snapped up. And today plenty of investors decided that the market was the place to be. Even financial stocks saw gains today as investors decided that the government is likely to keep the whole thing from collapsing, and now is the time to get in while the getting is cheap.

But that doesn’t mean that stock market troubles are over.

Volatility issues on the stock market

Even though it may seem as though this is a migration toward solid gains by the stock market, something very similar (and even bigger single-day point gain by the Dow) happened just a couple of weeks ago. The next day saw a huge drop. Indeed, the stock market has been so volatile that sizable rallies this month have sometimes reversed themselves in the course of a day. And today’s huge rally came in the final hour of the trading session.

CNN Money reports on how volatility needs to go before the stock market can truly recover:

“When you look at this in terms of valuation, volatility and investor sentiment, everything portends that a bottom has been reached or is near,” said Matt King, chief investment officer at Bell Investment Advisors.

However, he said that a more extended rally would be dependent on seeing more of the hour-by-hour volatility washed out of the market.

So, even though things look promising, we’ll have to see what happens overnight in Asia and Europe — and see how things look here in the U.S. come morning.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

Right now, with the stock market struggling, many people are worried about investing in riskier assets. As a result, there has been recent interest in U.S. government bonds. Treasury investing has been on the rise, since it is considered a “safer” move than stock investing. However, things are changing rapidly.

Debt auction boosts supply of U.S. government bonds

One of the essential rules of the market is that, theoretically, supply and demand sets the price. U.S. Treasury notes have been in demand, so they have advanced. But the other side of the equation is about to come into play. $64 billion in debt auctions are expected this week, and that means supply is about to be inflated. Bloomberg describes these effects on the desirability of U.S. government bonds:

“Treasury investors are wary of supply,” said Jane Caron, chief economic strategist in Burlington, Vermont, at Dwight Asset Management Co., which oversees $70 billion. “There will be a lot of supply coming down the road, and the government is very active in intervening in the markets. As a Treasury investor you have to be cognizant of their activity.”

Is now the time to dump your stocks?

Many people are viewing the current stock market troubles as an excuse to dump stocks. But without Treasury investments to turn to, many of them are doing little more than cutting their losses and pulling out. This could be a mistake down the road when the market recovers (as it is likely to do). Instead of relying entirely on share price to make a decision about keeping a stock, Talk Stock Trading recommends that you also look at the dividends:

Even if prices are dropping the dividends may not be.  Search for dividend yields.  A dividend yield equals the company’s annual dividend divided by the price of one share of stock.  The dividend yield changes as the price of one share changes.  So now that prices are moving lower dividend yields are moving higher.

Whether you invest in bonds or in stocks, now is not the time for rash action. Rather, it is a time for reflection and making solid decsions with sound reasoning.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

Tags: stock market, stock market news, investing blog, U.S. government bonds,
economy, investments, debt auction

Is this the end of the slow motion stock market crash? Will we see a real, honest to goodness crash today? We’ll see. But futures hit their down limits today, and circuit breakers are standing by. We could actually see a trade halt today on the U.S. stock market. Here is what Bloomberg says about circuit breakers:

The circuit-breaker rules, which call for a 30-minute halt should the Dow decline 1,100 points in the 30 minutes after 2 p.m., expire at 2:30 p.m. They would bar trading for two hours if the Dow lost 2,200 points.

The idea, of course, is to prevent all-out devastation in one day. It also serves as a way for traders to take a deep breath and re-evaluate what they are doing.

Bank stocks expected to be massacred

There really is no other term for what was is expected for bank stocks today. Although “pulverized,” “crushed,” and “destroyed” come pretty close. Even companies like JP Morgan and Wells Fargo are likely to take major hits today. Mainly because nobody is looking at quality anymore. Full on panic is the name of the game and everyone is pounding for the exits, trampling those too slow to leave quickly underfoot.

The good news is that for those who remain in (mostly via retirement accounts), there is a good chance that a recovery will come. But it will be long and hard and some people may have to put off retirement. After all, you don’t just rise from a bloodly, trampled pulp on the ground that quickly.

Lessons I hope we’ve learned

As with all instances of great misfortune, there is a chance for lessons to be learned. Hopefully we’ve learned a couple of lessons from this that we can apply, as a society, to create a more stable (though less exciting) stock market and economy:

• Judicious and practical regulation is probably a good idea.
• Transparency should be required.
• Don’t sacrifice long-term success for short-term gains.
• Look at the fundamentals.
• Practice solid finance.
• Don’t over-leverage yourself.

Can you think of any other lessons that should be learned from this mess?

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

Tags: stock market, stock market news, investing blog, stock market crash,
economy, investments, circuit breakers