The stock market has been on a tear since the lows of March 2009, gaining over 60%, but why? Unemployment has risen to nearly 10 percent and the average unemployed person stays unemployed for 12 weeks longer today than the first quarter of 2009. I don’t think too many people feel like the economy has improved in that time frame, so why the confidence in the market? Well right now we’re seeing it get knocked back down to reality. Let’s start with some technical stuff and then move on to how I think we need to move forward to reach real economic health again.
The 200 day moving average is a key indicator for the long term health and momentum of the stock market. The three major stock market indexes have each taken a painful dip below their 200 day moving averages. The NASDAQ tends to lead market trends as the most inclusive of the three indexes with more than three thousand companies, and actually moved below it’s 200 day moving average Tuesday (8/10) before it tanked another 3% Wednesday. The S&P fell 2.82% to 1082, and the Dow dropped a whopping 265 points, or 2.49%, in a single session to close just below 10,379. If you don’t know the significance of any of this, just know that it’s a big move for one day. Usually when the market makes a move across it’s 200 day moving average, it could be considered a false alarm and bounce back within a couple of trading sessions, but often if a quick bounce isn’t attained it points to a broader trend. I believe this is a broader trend.
This is an ugly signal for the next couple of months for the stock market, but I don’t think it’s anything we should really be surprised by. I’ve been down on the market for a while now, believing that the market’s V shaped recovery was not representative of the real world. I mean, does 9.5% unemployment sound good to anybody? A couple of weeks ago, I was somewhat right by guessing weak manufacturing numbers and positive earnings from some large tech and financial companies, but I thought that would be enough to pull the market back a bit. I was wrong, and our mixed signal earnings season actually rallied the markets. However, I think the market has finally realized, like the rest of us already knew, that our hard times aren’t over. It only took a few signals for them to figure it out. Job growth numbers have been revised down, the fed is acting like it’s getting ready for a double dip, and the GDP will likely have to be revised down sliced in half to about 1.2% growth after the trade gap skyrocketed $30 billion.
My opinion: I don’t think we’ll reach old levels and a 100% double dip recession, but I’d still strap in for a rough ride.
I’m not all doom and gloom, though. I think that America is a resilient country full of hard workers and innovators, and we (as in us ordinary citizens) are going to be the ones that lead the way to better times. Here’s how.