What will it take to stop the downturn in U.S. stocks?
Traders and investors stepping up to buy stocks. Whatever the reason—good earnings, some positive news on the economy, a reassuring statement from the Federal Reserve, whatever—stocks won’t go up unless more money moves into stocks than moves out.
Absolutely obvious.
But thinking about the obvious does tell you something about when this might happen.
Suppose that you’ve got some money sitting on the sidelines now that you’ve got targeted for buying stocks when the time is right. Would you put it into the stock market right now?
 I think most investors and certainly most traders would wait.
 If you buy stocks now, you’re buying an awful lot of uncertainty.
There’s the uncertainty about what the Federal Reserve might say this afternoon about the economy and when it will raise interest rates.
There’s the uncertainty about whether or not the Senate will confirm Ben Bernanke for a new term as chairman of the Federal Reserve.
There’s the uncertainty of what new banking rules, what new stimulus spending, and what budget cuts President Barack Obama will announce in the State of the Union address tonight.
Most of that uncertainty will be over by Friday.
The Federal Reserve ends a two-day meeting today, January 27, and the Open Market Committee will issue its usual cryptic statement shortly after 2 p.m.
The Senate is set to vote to end a filibuster on Bernanke’s confirmation on Thursday, January 28. The actual vote will follow 30 hours later—unless the Senate waves its procedural rules and votes sooner.
And President Obama will deliver his State of the Union address tonight.
It matters what is said or happens in each case. Surprising news could send stocks up or down over the next few days.
But in the slightly longer term, what matters is getting all this uncertainty behind us. Once we know what the Fed will say, how the Senate will vote, what President Obama will propose, traders and investors can put it all into stock prices. And they’ll know that if they buy, they aren’t buying uncertainties that could take a bite out of their stocks within hours of any buy.
Jim… What should we do with GLF now that it has tanked???
For better or worse, I’m with greenflash98: I used this dip, maybe impatiently, to empty my reserves into more MXWL, and new positions in BRF, DGW, CTRP, GG, ORA, INTL, and possibly (waiting for 92) ABV. I’ll be all out of cash, and just hope I haven’t jumped too soon. I valued these stocks individually, and their prices make sense to me for the long term, but I know very well the market moves in extremes, and that my fair price might not match the emotional mood of investors cautious about earned profits. Still, in the long run, I think I’ll be fine.
We got the fear, the bank closings, the high unemployment, the credit problems, etc.. When do we get the “(yes we can) new deal”? Maybe tonight’s speech will tell us. I hope so. John Maynard is sure in his glory.
thank you Jim, I always have a hard time hearing all the news and putting the puzzle together.
Your right too the market still has room to run it’s still down about 40% off the highs in 2008. May take awhile to get there but I think in 3 years we shall see.
Jim, it does make sense. The market has “sold the news” all week…maybe the news is already figured into stock prices. The tic list of yours certainly would impress investors more than earnings reports however you wanted to argue their meaning. Longer term catylists (positive ones you’ve mentioned) are those which will give investors reasons to “feel” good enough to buy instead of sell.
I’ve got cash, but I’m sitting on it for now. I just have this bad feeling that we have one big correction and not sure what the trigger will be, but probably not anything hugely significant. I’ve put in a few limit orders and then cancelled later in the day. Just not convinced yet… unless one on my watch list is punished for no real reason.
“I think most investors and certainly most traders would wait.”
Lots of uncertainty, this is true. Personally, I’ve just put most of my cash reserve back into Jim’s most recent worthy picks, ABV, MRVL, INTC, CEDC, SPWRA. I’d go more into TC as well, except I’ve already got a position and a half there—but it sure is nice to see Jim raise his target while the market beats this darling down. Anyway, I feel good about it, because it seems like we are getting hung up on what the market is going to do in the next few days and weeks, rather than over the next 12-18 months, which is, after all, the time horizon of these stocks. We all know nobody can time the market successfully over the long haul. And though it’s been repeated so often that it ought to be ingrained in our memories, we always seems to forget what Warren says about being greedy when others are fearful….
Continue to my last posting. Did you all read about Soro is NOT for Obama’s bank tax? I think Obama can scare but not screw the banks. Soro and his left-wing environmentalists are pulling Obama’s string, another one pulling the Obama string is union. The only one that Obama can really screw and squeeze is small business and he does not mind do it. That’s why don’t expect jobless get better soon.
Don’t expect housing sale back to what it used to be either. Because I believe US has surplus of housing units. 150 million housing units v. 300 m people, if I remember census correctly.
Disclosure: no positions in BG
Hi Jim,
Unrelated to this post, but I heard some pretty disturbing things about BG recently. Apparently some sell side analysts have been trying to short it for quite a while (some way back in 2007, but they got their heads handed to them). It’s on the grounds that it’s overvalued, has shady accounting, runs a huge hedging program to produce fake GAAP earnings without the cash flow (they compared this to how Enron learned on its trading operations). Apparently BG’s CFO was also indicted for fraud in her previous job (Swiss air) but not convicted.
Not sure how much truth there is to all this is, but just FYI because I’m a regular reader.
Though I do think the uncertainty is holding the market hostage, whatever Obama may say tonight won’t matter much. Because whatever Obama may say or propose are political and serve the sentiment of the moment. They can all be watered down and changed later except negative proposals against small business like the “mandatory IRA”.
Bernanke’s confirmation is critical. Senators need to understand the consequences of not confirming him.
China’s tightening is a good thing. Correction in the emerging market is necessary.
Add uncertainty about new home sales, existing home sales, shrinking credit, increased financial regulation, more rigorous credit ratings, increasing unemployment, decreasing state/county/local tax revenue, pension underfunding, ad nauseum. Cash IS an asset class, and sometimes the most difficult (but wise) thing to do is nothing. DON’T BUY ANYTHING, at least for a while.
Does an upswing from these news items signal an end to the correction? While further downswing means the correction continues?
Or is it buying time at the end of this week and next week regardless, to get into your projected good market for the first half of the year?