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.
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.