What are reasons for the stock market setback in the last two weeks?
July 23rd, 2010
The stock market reached all times highs. Is it plain and simple a time for a correction. Can other events be tied into other than the subprime mortgages dilmena. Thanks for your answers.
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There are several reasons to be wary of the market right now.
Oil prices are increasing, the labor market is tight, the market is very high and the housing market is slow.
Oil prices and the tight labor market are going to increase inflation (prices will increase) to offset these price increases people will have less money to invest so the market will remain flatter.
To offset this inflation, interest rates will be increased, increasing the defaults on subprime and a-1 loans most of which are variable rate loans, exasperating the housing crisis.
Many companies (insurance, banks, major conglomerates) have invested heavily in mortgages or companies that offer mortgages, as the defaults increase it will cause a ripple effect on earnings and the corporate bond market will start to sag.
Couple this with the increased chances of the Democrats winning the presidency, and the expectation of an increased tax burden….
and
Things are looking slightly recessionary. We are probably not headed for a crash, but a large correction in the next 6-24 months.
I think it was short term overbought. People were ready to take some profits and jumped on the credit "crisis" as a good reason. Then as the market went down, fear took over. Fear is the main driver of this weakness. By year’s end things will be settled down and much more comfortable. Jobs stay strong, consumer stays strong and they trump weakness in housing (which lasts till mid ‘09).
I think a lot of it is psychological. People see that the market is reaching all time highs and because of it they want to cash in while it is high. When there is a lot of selling prices naturally fall. I think things will balance out and prices will start to rise again.