As awful as last fall was in the market, I truly am more frustrated by the current environment. The market continues to drift downward, dragging everything with it. I can understand the financials being hit (Citigroup is now a penny stock!). I can understand the autos being hit (GM is at 75 year lows). I can understand economically sensitive sectors being hit (homebuilders, luxury goods, etc). But solid companies that continue to earn money are falling right along side of them. Why? It's not because they are bad companies, or that people are panicking and selling out. It's simply because there are no buyers.
The economy continues to languish, with no end in sight. Our representatives in Washington keep coming up with more ways to spend our money. So what do people do in times of uncertainty? They hoard cash. Never mind that the best return they can hope for is barely above zero (at least it's positive!). The cash hoarding will continue until there is a catalyst that entices investment. What might that be?
Positive news of any kind would be a GREAT catalyst, but I don't see anything on the horizon. Lately any news that has been less bad than expected has had at least momentary positive effect. I would suspect that simple exhaustion might give us some upside, or at least a relief rally. By this I mean that investors simply get frustrated earning 0.20% on their cash and begin thinking that stocks selling for less than the value of their assets look awfully attractive.
At present, (many) stocks look as cheap as they ever have. There is tremendous value in a lot of these companies, and it is being ignored out of fear and frustration.
And now for a little good news: despite being down about 7% for the week, both the Dow and the S&P 500 closed up today, with the Dow climbing roughly 150 points in the last half hour of the day. That may be pretty significant, as most traders do not like to be exposed going into a weekend.
