Market commentators say that the fear is a major factor today ahead of U.S. Stock Markets open. Although IBM reported better than expected results, A.G. Edwards Chief Market Strategist Al Goldman says "the stock market will experience some short-lived bounces," but he think the rebound is several months off.
Al Goldman in his words on Stock Market for Today
"What a way to start the New Year! The DJIA has dropped 5%, the worst start since 1991. The emotions, fear and greed, control the direction of the stock market today, yesterday and probably for all the tomorrows. Fear is the dominant mood of investors today and will control investment decisions for an unknowable number of future months. The list of frightening things is a long one: possible recession and its impact on corporate earnings; the housing market and subprime mortgages; the credit market turmoil; dropping consumer spending and signs of a softening labor market. None of these are new problems but evidence has been growing that recession risk is more than a 50/50 proposition.
Another sign of increased investor fear is the sharp rallies in Treasury bonds and gold. Fear will be replaced by greed out there sometime and a recession is always followed by economic recoveries in our great free market society. But, the question is when? If the U.S. goes into recession, the average length is 10.4 months.
The stock market should start looking beyond the recession by late spring/early summer. If we avoid recession investors will still have to discount a very soft economy, lower corporate profits than generally projected (according to Thompson Financial, +16.1% by security analysts), and a possible new administration which pushes for higher taxes. This environment would take less time to discount than a recession scenario - like one to three months. Either way, a more cautious, defensive approach with above average cash reserves continues to be appropriate.
After the recent sharp market selloff, the stock market will experience some short-lived bounces but a big move back to the upside is probably several months off. It will take time for fear to be replaced by greed. Today - IBM (97.67) stated that 4th quarter earnings will be better than analysts' projections which is helping the futures rise sharply and indicating a strong opening. The market is overdue for at least a reflex bounce, which also will be helped by anticipation of more monetary and fiscal stimulation."
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