When Will the Stock Market Rally in Earnest?
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This week saw a rather spectacular rally on the U.S. stock market. Friday, though, saw a major pull back — with the Dow Jones Industrial Average falling nearly 150 points. As a result, it is not very surprising that there are some skeptics returning to the stock market. After a week full of optimism, it’s time for a little pessimism.
Right now, questions are being raised about the long-term fundamentals of the U.S. economy. Wall Street was ecstatic about recent measures announced by the U.S. government — measures designed almost exclusively to help the stock market. Especially well-received was the latest bank rescue plan aimed at buying even more toxic assets from struggling financial institutions. This plan was tempered by comments from Secretary Treasurer Timothy Geithner about regulation, however.
All of the speculation about the speed of the economic recovery (it’s expected to be relatively slow, taking until the beginning of next year to get solidly underway) is creating an aura of skepticism about the future and how well government policies will work. Another issue is that there is some concern about economic fundamentals. The money supply is being increased, along with our national debt. This has some worried about the long-term, overall health of the economy.
Profit taking on Wall Street
Another reason that stocks dropped yesterday is probably profit taking. After seeing gains all week, it’s hard for investors to not cash in. And profit taking is a pretty good strategy for many stock investors — especially day traders. The idea behind profit taking is that you sell your stock when it becomes profitable — when you have made profits that overcome fees and commissions and leave you with something approaching “tidy.”
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.
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