September 11, 2009:
“So goes August, so goes the market.” In my 28 years of being in the industry, I’ve never heard that the month of August determined the stock market year. January is usually the month used as that indicator. Regardless, the bullish investors are claiming victory and that a bull market has started. Well, I won’t deny that the economic figures have improved, but one has to wonder if the driving force has been government stimulus programs. These programs won’t last forever. Yes, in August, we saw better than expected housing data, consumer confidence, and Ben Bernanke reappointed.
Is this rally for real? My concern is that the equity market is on its last leg. Keep in mind that stimulus programs, like the $8,000 dollar tax credit for first time home buyers, will end soon. Cash for clunkers is over. Another program which kept interest rates low was the Fed’s $300 billion dollar long term treasury bond purchase program that ends in October. In my last blog, I discussed the concerns I have for the banks. The FDIC closed 25 banks in 2008 and 87 banks in 2009. In March of 2009, the FDIC told us they had 305 problem banks only to increase that number to 416 problem banks at the end of June.
All of the above is especially concerning when you include the discussions going on about increases in tax rates, inflation, and regulations. These factors alone could have a substantial impact on the economy and the market. We don’t believe this stock market rally is sustainable and the coming weeks could easily prove this.
Let me hear your thoughts and comments.