As said in an past article, from time to time the best movement is standing still. As true as that is, after the three month economic rally we’ve seen, it’s time to stop and refocus. In a discussion in the remarks of a previous post regarding the new Northrop Grumman agreement, this author made the subsequent comment, to the arrangement of both parties involved in the conversation, “However, you mentioned we had the biggest rally in history. That is true, and it concerns me slightly. Our recession hit a false bottom. I’m afraid that people will get too excited and we will hit a false rally. I’d like to see a slow, steady rally as we rebuild a firm foundation under it, instead of just setting up another rollercoaster ride.” That is exactly what you are currently seeing.
We are stepping to the left at the moment, and then taking a step or two back to take a look at what we are at present doing. That is healthful and, albeit odd to admit, encouraging. Investors have been courageous but intelligent and it paid off for three months in a good rally. Investors are at this time backing off with the gossip that the signs of financial growth have hindered and will need more concrete evidence of rally before building further. With the dread of rising interest rates, inflation, the slipping value of the US dollar and increasing commodity costs, it is understandable and strong.
The slipping dollar and inflation are wordlessly robust concerns. Reservations over government arrears (partially created by the complete TARP mess) that has began to lead to a little further printing is beginning to drop the worth of the dollar. Merge that with fears of inflation or a increase in interest rates by reason of impending labors by the Federal Reserve to trump inflation and you have a very unsound economic system on which to run a stabilizing market. Be encouraged, however, because investors are doing the right thing and the economic slowdown after a hefty rally is a great, healthy thing. This gives the economy to even out and build under the new rally ahead of starting another one and gives the state time to begin giving the dollar financial CPR and allows the Fed to control interest rates and inflation. Everyone wins.
“A sideways move in the market is actually a corrective move. You dispose of the overbought state when you move sideways,” said Keith Springer, leader of Sacramento-based Capital Financial Advisory Services. Analysts and experts warn that the rally was a bit too much for the economy to deal with and that a small pullback is in order to recap and harden before moving any further. The S&P 500 index incresaed 40% since March, something that normally takes years to do. That is enormous and requires a healthy break to measure the situation and look for optimistic news previous to pressing on.
The major indexes stirred less than 1% last week, creating a pleasant rigid halt. “I’m tending to take the economy action the last two weeks as reasonably positive,” said Uri Landesman, from ING Investment Management global growth strategies.
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