Can This Rally Be Sustained?
Jan 8, 2009
Posted by Jody Eisenman | Filed under Uncategorized
Thus far, 2009 has been shown to be a much better year for stock prices, at least for the first few trading days. Building on a rally than began in late December, the DJIA and the S and P 500 have risen about 7-8% recently. CNBC reported yesterday that there are actually more bullish analysts than bearish ones out there. Is this the start of an upturn?
My gut feeling is no, and I believe that this rally will fizzle out sometime this month. Here’s why:
- The economy is still in distress. Unemployment is rising and consumer spending is dropping.
- The federal deficit is expected to be over 1.1 trillion dollars in 2009. As this does not include the proposed Obama stimulus plan, as well as any other potential federal bailouts, this number could easily be much higher.
- The credit markets are still in distress. It would seem to me that given the fact the fact we are in a two tiered market (i.e. treasuries on one tier and all other debt on the other tier) it would seem that if investors decide to switch out of treasuries; bonds would be a more logical choice.
Therefore, I am quite skeptical over the sustainability of this rally. I continue to believe that we are in a traders’ market, and that the high volatility on both the up and down sides will continue in the equity market for the foreseeable future.
